“The European economy continues to expand against a difficult global backdrop. All EU countries are set to grow again”: it’s the overall picture presented by Pierre Moscovici, Commissioner for Economic and Monetary Affairs, in his introduction of the “Summer Economic Forecasts” in Brussels. The “interim” – thereby “lighter” – prospects, only regard the growth of European countries. The GDP forecast for Eurozone countries remains unchanged at 1.4% in 2019 and 1.6% in 2020. It’s the “seventh consecutive year of growth”, even “stronger than expected in the first quarter of the year” as a result of “temporary factors” such as mild winter conditions (that benefited the building sector), a rebound in car sales, along with fiscal policy measures, which boosted household disposable income in several Member States, with “the lowest unemployment rate in 10 years”, said Moscovici . However
The future is clouded by “global trade tensions and significant policy uncertainty”, have continued to weigh on confidence in the manufacturing sector.
A “no deal Brexit” is a major source of risk. “All EU countries are set to grow again in both 2019 and 2020, with the strong labour market supporting demand”, Commissioner Moscovici went on, but given impending risks “we must intensify efforts to further strengthen the resilience of our economies and of the euro area as a whole”, for they could jeopardize Europe’s pace of growth. “The next complete forecasts will be presented by my successor in early November. I don’t know who it will be, but he will do a great job”, added the French Commissioner.
The economies of Malta and Poland top the European rankings and are progressing fastest: the former with a GDP growth rate for 2019 of +5.5%, the latter at 4.2%. While growth characterizes all European economies, they are greatly diversified at national level. Ireland (3.8%) and a large part of Eastern Europe (Slovakia (3.8%), Hungary (3.7%), Bulgaria (3.3%), Slovenia, Cyprus and Latvia (all three at 3.1%) are definitely performing well. Estonia (2.8%), Greece (2.2%), Spain (2.1%), Lithuania (2.7%), Luxembourg (2.5%), the Czech Republic (2.6%) and Croatia (2.6%) are forecast a growth rate of between 2 and 3 percentage points. Belgium (1.2%), France (1.3%), the Netherlands, Portugal, Austria, Finland, Denmark, Sweden and the United Kingdom are set to grow from 1 to 2%, which contrasts with the slowdown in Germany – registering a growth rate of 0.5% – and Italy – at a standstill with a projected 0.1%. Slight adjustments are forecast for 2020, albeit with no remarkable changes. Italy will continue lagging behind, the only Country set to grow less than 1% (forecast of +0.7%). Germany, on the other hand, is projected a gradual restart at a pace of +1.5%.
Italy’s “marginal” growth, according to the Commission, is linked “to the challenging external environment.” Moreover, past March, manufacturing output “slipped back into contraction and continued to shrink in April” while “business and consumer surveys indicate subdued economic activity in the near term.” Hence it is expected to remain stagnant at 0.1% until the end of the year. In 2020, economic activity should rebound to 0.7% in line with “the gradual improvement of the global trade prospects” and benefiting from the fact that 2020 will have two more working days. However, warns the Commission, “risks to the growth outlook remain pronounced, especially in 2020, when fiscal policy faces particular challenges.”
GDP growth in Italy is set to rest largely on private consumption, supported by lower energy prices and the new citizenship income scheme for low-income earners, that will nonetheless be confronted by “a less dynamic labour market and declining consumer confidence associated with a rise in precautionary savings.”
Brussels recognizes that monetary policy and the fiscal correction adopted by the Italian government have ebbed market tensions, pointing out that “the related compression of sovereign yields, if sustained, might ease banks’ funding costs and support corporate lending.”
Exports, due to slow down in 2019, are projected to grow next year “on the back of firming external demand.” While the unemployment rate dropped below 10% in May, “weak economic activity is likely to weigh on the labour market” as indicated “by the rising number of workers” supported by the wage guarantee fund. Consumer prices are set to increase by 0.8% in 2019 and by 1.0% in 2020.