Analytics, Economics, EU – Baltic States, Modern EU

The European economy has seen its seventh consecutive year of growth in 2019, with all EU states' economies expansion. Growth in the euro area was stronger than expected in the first quarter due to a mild winter conditions and a rebound in car sales. It also benefited from fiscal policy measures, which boosted household disposable income in several states. The summer outlook, however, is clouded by external factors, such as global trade tensions and significant policy uncertainty, which reduced outcomes in the manufacturing sector and are going to weaken the growth outlook for the rest of 2019.  

For example, the forecast for euro area’s GDP growth in 2019 remains unchanged at 1.2%, while the forecast for 2020 has been lowered slightly to 1.4% following the more moderate pace expected in 2019 in spring forecast at 1.5%. The GDP forecast for the EU-28 remains unchanged at 1.4% in 2019 and 1.6% in 2020.

Commissioners’ opinion

Vice-President for the euro-zone, financial stability and Capital Markets Union underlined that the EU economy in general was on a good track with the robust growth in Central and Eastern Europe contrasting slowdown in Germany and Italy. Among external factors there are “persistent manufacturing weakness” stemming from trade tensions and policy uncertainty; on the domestic side, a “no deal-Brexit” remains a major source of risk. 

Commissioner for economic, financial affairs and taxation mentioned that the member states’ economies continued to expand in both 2019 and 2020 against a difficult global backdrop, with the strong labour market supporting demand.

However, the states have to be aware of numerous risks mentioned in the summer outlook and intensify efforts to further strengthen the resilience of their economies.

Domestic demand, particularly household consumption, continues to drive economic growth in the member states helped by the continued strength in the labour market. GDP is forecast to grow in all EU states with stronger growth in e.g. Central and Eastern Europe, Malta, and Ireland, with less active than expected in e.g. Italy and Germany.

Inflation and domestic risks

The forecasts for headline inflation in the EU euro area have been lowered by 0.1 percentage points this year and next, mainly due to lower oil prices and the slightly weaker economic outlook. Inflation (Harmonised Index of Consumer Prices) in the euro area is now forecast to average 1.3% in both 2019 and 2020 (spring forecast was 1.4% in 2019 and 2020), while in other EU states it is forecast to average 1.5% in 2019 and 1.6% in 2020 (spring forecast: 1.6% in 2019 and 1.7% in 2020).

Risks to the global economic outlook remain highly interconnected and are mainly negative. An extended economic confrontation between the US and China, together with the elevated uncertainty around US trade policy could prolong the current downturn in global trade and manufacturing and affect other regions and sectors. This could have negative repercussions for the global economy including through financial market disruptions.

Tensions in the Middle East also raise the potential for significant oil price increases. Domestically, Brexit remains a major source of uncertainty; there are also significant risks surrounding near-term growth drivers and economic momentum in the euro area. Weakness in the manufacturing sector and depressed business confidence could spill over to other sectors and harm labour market conditions, private consumption and ultimately growth.

More information in: 

- Full document: Summer 2019 Economic Forecast

General source: http://europa.eu/rapid/press-release_IP-19-3850_en.htm?locale=en/ Brussels, 10 July 2019.