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EC forecasts growth clouded by external factors for the EU economy
Growth for the euro area 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 the rest of this year (spring forecast: 1.5%). The GDP forecast for the EU remains unchanged at 1.4% in 2019 and 1.6% in 2020, according to the European Commission Summer 2019 Economic Forecast released today.
The European economy is set for its seventh consecutive year of growth in 2019, with all member states' economies due to expand. Growth in the euro area was stronger than expected in the first quarter of the year due to a number of temporary factors such as mild winter conditions and a rebound in car sales. It also benefited from fiscal policy measures, which boosted household disposable income in several Member States. The near-term outlook for the European economy, however, is clouded by external factors including global trade tensions and significant policy uncertainty. These have continued to weigh on confidence in the manufacturing sector, which is the most exposed to international trade, and are projected to weaken the growth outlook for the remainder of the year.
For the UK, GDP growth is forecast to be 1.3% in 2019. Stockpiling and other actions taken by businesses to mitigate the uncertainties surrounding the date and nature of the UK’s exit from the EU, temporarily boosted growth in the first quarter of this year. Real GDP rose 0.5% (quarter-on-quarter) in 2019-Q1, above the average 0.3% growth rate observed in 2018. However, evidence from a range of business surveys and April’s weak GDP data indicate that the unwinding of this stockpiling and mitigation activity likely had an opposite, dampening, effect on economic growth in 2019-Q2.
In 2020, UK GDP growth is projected to be stable at 1.3%, as an expected improvement in the contribution of net trade to growth is forecast to be offset by slower domestic demand growth. Government and private consumption growth are expected to moderate in 2020, in line with somewhat tighter fiscal policy, while investment growth is expected to remain weak.
Given the ongoing ratification process of the Withdrawal Agreement in the UK, projections for 2019 and 2020 are based on a purely technical assumption of status quo in terms of trading relations between the EU27 and the UK. This is for forecasting purposes only and has no bearing on future negotiations between the EU and the UK.
European Economic Forecasts – explanatory website