Autumn economic forecasts 2018: stable but less dynamic growth amid high uncertainty

Growth in the euro area is expected to fall by 2,4% the 2017, the highest level of the decade, in 2,1%, the 2018, and then 1,9% the 2019 and 1,7% the 2020. The same trend is expected for the EU 27, with projected growth 2,2% the 2018, 2,0% the 2019 and 1,9% the 2020.

Last year's extremely favorable world situation contributed to the strengthening of economic activity and investment in the EU and in the euro zone. Despite the uncertain environment, in all Member States expected to maintain growth, but at a slower pace, thanks to the strength of domestic consumption and investment. Europe is expected to maintain economic growth above potential and continue the significant job creation and reducing unemployment, unless there are serious disturbances. However, this baseline scenario is subject to more and more interrelated downside risks.

The Valdis Ntomprovskis, Commission Vice President and Commissioner for the Euro and Social Dialogue, and Financial Stability, Financial Services and Capital Markets Union, He said the following: «All EU economies are expected to show growth this and next year, which will create more jobs. However, uncertainty and risks, both external and internal, They grow and begin to arrest the pace of economic activity. We should not be complacent, but rather to increase our efforts to strengthen the resilience of our economies. At EU level, we must take specific decisions on further strengthening the Economic and Monetary Union. In national level, it is even more imperative to create fiscal reserves and reduce debt, while also ensuring that the benefits of growth are felt in the most vulnerable members of society.»

Pierre Moskovisi, Commissioner for Economic and Financial Affairs, Taxation and Customs, He said the following: "The European economy demonstrates resilience and growing at a rate that gradually slows. We predict that this trend will continue in the next two years, as unemployment continues to fall to levels that had not occurred since the crisis erupted. Public debt in the euro area is expected to continue to decline, while the deficit will remain well below the 1% of GDP. In an increasingly uncertain international environment, policy makers in Brussels and in national capitals must make every effort to ensure that the euro zone will be strong enough to deal effectively with all possible future challenge. "

The domestic demand as an engine for development

Increasing global uncertainty, tensions in international trade and higher oil prices will have negative consequences for economic growth in Europe. After several years of strong employment growth, the prospect of a slowdown in improvements in the labor market and increasing restrictions on the supply side in certain Member States could also increase these negative consequences.

The driving forces of growth should be more and more national character: Private consumption should benefit from the highest increase in wages and taking fiscal measures in certain Member States. Financing conditions and high utilization rates of production capacity is expected to also continue to favor investment. For the first time since 2007, Investments are expected to increase in all Member States 2019.

Given all these factors, gross domestic product (GDP) all Member States are expected to continue to grow, but at a slower pace, and slightly lower than was projected in summer.

Unemployment continues to fall

The labor market conditions in the first half continued to improve the 2018, as employment growth remained stable, although economic growth slowed.

Job creation should continue to be favored by the continuous development and implementation of structural reforms in some Member States. Unemployment is expected to continue to decline, but at a slower pace than,in the past, as employment growth may be adversely affected by rising labor shortages and slowing growth.

Unemployment in the euro area is expected to fall to 8,4% this year, in 7,9% the 2019 and to 7,5% the 2020. In EU 27, the unemployment rate is projected to rise to 6,9% this year, and then reduced to 6,6% the 2019 and to 6,3% the 2020. This is the lowest unemployment rate since it began recording monthly unemployment, January 2000.

Oil prices affect inflation upwards

During the forecast period, headline inflation is expected to remain moderate. In the euro zone, Inflation is projected to rise to 1,8% the 2018 and 2019 and to fall 1,6% the 2020.

Rising oil prices pushed up inflation in the current year and the strong positive base effects are expected to continue in the first quarter of next year. While core inflation, which does not factor in energy prices and unprocessed food, this year so far relatively subdued, again expected to be the main driver of headline inflation in 2020, as wages are rising amid tight labor markets.

public finances: debt levels are reduced and the overall government deficit in the euro zone is far less than 1%

The general government deficit in the euro area is projected to continue to decline in relation to GDP this year, thanks to the reduction in interest expenditure. This downward trend is expected to end next year, for the first time since 2009, as the fiscal stance is expected to be slightly expansionary in 2019, before becoming generally neutral in 2020. The general government deficit in the euro area is expected to increase from 0,6% of GDP in 2018 in 0,8% the 2019 and to fall 0,7% the 2020. The general government deficit in the EU 27 expected to increase from 0,6% of GDP in 2018 in 0,8% the 2019 and to fall 0,6 % the 2020. In total, It is expected in one of the most important improvements compared to ten years ago, the 2009, when the deficit peaked at 6,2% in the euro zone and 6,6% EU.

The debt ratio to GDP is projected to continue to decline in the euro area and in almost all Member States, thanks to continued growth and primary surpluses contribute to debt reduction. In the euro zone, the ratio of government debt to GDP is expected to decline from 86,9% the 2018 in 84,9% the 2019 and to 82,8% the 2020, decrease from the highest price 94,2% the 2014. In EU 27, the general government debt ratio is expected to decline from 80,6 % of GDP in 2018 in 78,6 % the 2019 and to 76,7 % the 2020.

Many interrelated risks and uncertainty overshadow prospects

Provisions are characterized by a high degree of uncertainty and there are many interrelated downside risks. The event any of these risks could strengthen others and to maximize their impact.

The overheating of the US economy, fueled by pro-cyclical fiscal stimulus measures, could lead to a faster than expected rate hike, which would have many negative secondary effects, than US, particularly in emerging markets that are vulnerable to swings in capital flows and exposed to debt denominated in US dollars. This situation could lead to intensification of tensions in financial markets. The EU could also be affected because of strong trade ties and bank exposure.

Furthermore, the expected widening of the US current account deficit could fuel further tensions on trade with China, thus increasing the risk of disorderly adjustment in China, given the level of corporate debt and financial instability. The increased trade tensions could also affect the EU through their effect on the climate of trust and investment, and because of the high degree of EU integration in global value chains.

Within the EU, doubts about the quality and sustainability of public finances in highly indebted Member States could be extended to domestic banking sectors, which would cause concerns about financial stability and will stifle economic activity.

End, there are still risks associated with the outcome of negotiations on the «Brexit».

About the UK, a purely technical assumption for the 2019 and 2020

To allow comparison over time, projections relating to them 28 Member States, including the UK. Given the ongoing negotiations on the terms of the UK leaving the EU, The Commission forecasts are based on a purely technical assumption status quo as regards trade relations between EU-27 and the United Kingdom. This is done solely for the purposes of provisions and does not affect the talks in the context of the Article 50.

record

These projections are based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices, with the deadline 22 October 2018. For all other input data, as well as the assumptions on national policies, These projections take into account data collected up to the 22 October. The forecasts are based on the assumption of unchanged policies, unless policies announced reliably identified and in sufficient detail.

The following provisions of the European Commission will be updating the forecasts for GDP and inflation in the context of interim economic forecasts of winter 2019, which will be published in February 2019.

by year, The European Commission has begun re-publishes two comprehensive forecasts (Spring and autumn) and two intermediate projections (Winter and summer) annually, instead of three global forecasting winter, spring and autumn, published annually since 2012. The interim forecasts cover the annual and quarterly data for GDP and inflation for the current and next year for all Member States and for the euro zone, and aggregated data at EU level. This change is a return to the previous Commission forecast model and re-aligns the timing of the Commission's predictions with the schedule of other organizations (B.C. the European Central Bank, the International Monetary Fund and the Organization for Economic Co-operation and Development).

Source: http://europa.eu/rapid/press-release_IP-18-6254_el.htm