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European economy to continue expanding for 7th year
International

European economy to continue expanding for 7th year

Agency News

Brussels, May 8 : The European economy is forecast to continue expanding for the seventh year in a row in 2019, with real GDP expected to grow in all EU Member States.
The European Commission (EC) on Tuesday published its Spring 2019 Economic Forecast. It covers the years 2018, 2019 and 2020 and includes key economic figures such as gross domestic product (GDP) growth, employment, unemployment, general government gross debt and inflation for all 28 EU Member States, according to its press release.

According to the Commission's forecasts, the European economy is forecast to continue expanding for the seventh year in a row in 2019, with real GDP expected to grow in all EU Member States. As global uncertainties continue to weigh, domestic dynamics are set to support the European economy. Growth is expected to gather pace again next year.

The recent slowdown in global growth and world trade, together with high uncertainty about trade policies, is weighing on prospects for Gross Domestic Product (GDP) growth in 2019 and 2020. The continued weakness of the manufacturing sector also plays a role, especially in those countries encountering specific problems in the automobile industry.

As global trade and growth are expected to remain weaker this year and next compared to the brisk pace seen in 2017, economic growth in Europe will rely entirely on domestic activity. More Europeans are now in work than ever and employment growth is expected to continue, albeit at a slower pace. This, together with rising wages, muted inflation, favourable financing conditions and supportive fiscal measures in some Member States, is expected to buoy domestic demand. All in all, GDP is forecast to grow by 1.4pc in the EU this year and 1.2pc in the euro area.

In 2020, adverse domestic factors are expected to fade and economic activity outside the EU to rebound, supported by easing global financial conditions and policy stimulus in some emerging economies. GDP growth next year is forecast to strengthen slightly to 1.6pc in the EU and 1.5pc in the euro area. The figures for 2020 also benefit from a higher number of working days that year.
According to the Commission's forecasts, labour market conditions continued to improve despite the slowdown in growth towards the end of 2018. While still too high in certain Member States, unemployment in the EU - at 6.4pc in March 2019 - has fallen to the lowest rate recorded since the start of the monthly data series in January 2000. Unemployment in the euro area is currently at the lowest rate since 2008.
Inflation in the EU is expected to fall to 1.6pc this year before rising to 1.7pc in 2020. Euro area headline inflation dropped from 1.9pc in the last quarter of 2018 to 1.4pc in the first quarter of this year due to lower increases of energy prices.
With energy price inflation expected to moderate further in the coming quarters and little sign that higher wage growth has been fuelling underlying price pressures, euro area inflation (Harmonised Index of Consumer Prices) is forecast to reach 1.4pc in both 2019 and 2020.
According to the Commission's forecasts, debt-to-GDP ratios are forecast to fall in most Member States in 2019 and 2020 as deficits remain low and nominal GDP growth should remain higher than the average interest rate on outstanding debt. Assuming no policy change, the debt-to-GDP ratio of the EU is forecast to fall from 81.5pc in 2018 to 80.2pc in 2019 and 78.8pc in 2020. The euro area's aggregate debt-to-GDP ratio should fall from 87.1pc in 2018 to 85.8pc in 2019 and 84.3pc in 2020.
Downside risks to the outlook remain prominent. The risk of protectionist measures worldwide and the current slowdown in world GDP growth and trade could turn out to be more persistent than expected, particularly if growth in China disappoints.

In Europe, risks include that of a ‘no-deal' Brexit and the possibility that temporary disruptions currently weighing on manufacturing could prove more enduring. There is also the risk that a rise in political uncertainty and less growth-friendly policies could result in a pull-back in private investment.UNI