Interim Economic Forecast: Resilient growth amid increased uncertainty

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Pierre Moscovici, EU Commission (Photo: EU Commission)

The European Commission published its “Summer 2018 Interim Economic Forecast”. It covers the years 2018 and 2019 and includes data on gross domestic product (GDP) growth and inflation for all 28 EU Member States.

According to the Commission’s forecast, growth is set to remain strong in 2018 and 2019, at 2.1 per cent this year and 2 per cent next year in both the EU and the euro area. However, after five consecutive quarters of vigorous expansion, the economic momentum moderated in the first half of 2018 and is now set to be 0.2 percentage points lower in both the EU and the euro area than had been projected in the spring. Growth momentum is expected to strengthen somewhat in the second half of this year, as labour market conditions improve, household debt declines, consumer confidence remains high and monetary policy remains supportive.

Fundamentals remain solid but growth is set to moderate

According to the Commission’s forecast, fundamentals remain solid but growth is set to moderate. The fundamental conditions for sustained economic growth in the EU and the euro area remain in place. The moderation in growth rates is partly the result of temporary factors, but rising trade tensions, higher oil prices and political uncertainty in some Member States may also have played a role. Globally, growth remains solid but rates are becoming more differentiated across countries and regions.

As a result of the rise in oil prices since the spring, inflation this year is now forecast to average 1.9 per cent in the EU and 1.7 per cent in the euro area. This represents an increase of 0.2 percentage points in both areas since spring. The forecast for 2019 has been raised by 0.1 percentage points for the euro area to 1.7 per cent but remains unchanged at 1.8 per cent for the EU. While the recent strong economic performance has proven to be resilient, the forecast remains susceptible to significant downside risks, which have increased since spring.

The forecast baseline assumes no further escalation of trade tensions. Should tensions rise, however, they would negatively affect trade and investment and reduce welfare in all countries involved. Other risks include the potential for financial market volatility linked to, inter alia, geopolitical risks.

Source: EU Commission