The Euro Area’s Economic Outlook Has Turned Gloomier

“The European economy is expected to grow for the seventh year in a row in 2019, with expansion forecast in every Member State. The pace of growth overall is projected to moderate compared to the high rates of recent years and the outlook is subject to large uncertainty.” (European Commission Press Release, Feb.7, 2019)

The European Commission (EC) regularly monitors developments of the countries in the Euro Area. In recent months, there has been a slate of gloomier economic forecasts particularly since the Euro Zone growth rate stumbled so badly in the fourth quarter of 2018.

It is obvious that much of the deceleration in projected Euro Area growth can be traced to external forces, particularly to the slowing of the global economy and concerns relating to the trade dispute issue.

As well, there are domestic issues which are also making matters worse, including political tensions in Italy and France, budget problems in some countries, as well as a weakness in the car industry.

Italy is experiencing a serious phase of political instability and there are also violent protests in France. Germany’s auto industry is also experiencing problems related changes in regulations.

Clouds on the international horizon are also getting darker, and China’s economy could be slowing more sharply than they reported. Many emerging market countries area also vulnerable to the global slowdown in trade and investment spending.

Over the past twelve months, year over year Euro Area growth has decelerated from 2.6% to 1.1% as of the fourth quarter of 2018.

In its latest projections, the Commission cut its Euro Area GDP growth projection to 1.3% in 2019 and 1.6% in 2020.

With respect to inflation, the Commission reduced its 2019 Euro Area forecast to 1.4% in 2019 and 1.5% in 2020. The ECB still asserts that inflation will return closer to a 2% pace over the medium term.