The European Commission, in its Spring Economic Forecasts presented on Tuesday 7 May, estimated that economic growth is likely to slow down for the year 2019 and maintained its concerns about the uncertainties in the economic situation.
“The weak [growth] recorded in the second half of last year was a surprise for everyone”, said Pierre Moscovici, Commissioner for Economic and Financial Affairs, at the opening of the press conference. “Nevertheless, despite this marked slowdown, which has led us to revise our growth forecasts downwards, the fundamentals of the European economy remain solid”, he added.
This is not the time for great concern on the part of the European Commission, as GDP is expected to grow by 1.4% in the European Union and 1.2% in the euro area this year.
However, due to a slowdown in international trade and global growth, GDP in the EU will increase less than it did in 2018 (2.0%) (see EUROPE 12189/1). However, the institution expects growth to pick up again next year, to 1.6% in the EU and 1.5% in the euro area.
This rather favourable economic situation, however, cannot obscure significant uncertainties. Indeed, trade conflicts and weak growth in some emerging countries, notably China, are a source of concern for the Commission, as is the unknown surrounding the United Kingdom's exit from the European Union (see EUROPE 12241/5) or the conduct of policies that are not conducive to economic growth. “Downside risks to the economic outlook remain predominant”, commented Pierre Moscovici, identifying the risks of further protectionist measures, a slowdown in global demand and mentioning Brexit.
Nevertheless, the Commission is of the opinion that private consumption and investment could provide more support for growth in the coming months than initially expected, due to possible consumer and investor confidence and the implementation of growth-enhancing socio-economic reforms.
National growth rates. These growth rates at euro area or EU level also hide significant disparities between Member States. Indeed, the Commission expects growth rates of 4.2% this year in Poland or 3.8% in Ireland and Slovakia, for example, compared to 0.5% in Germany.
For Italy, while Rome was expecting a growth rate of 1% for 2019 at the end of last year (see EUROPE 12227/14), the Commission estimates that it will be 0.1% and 0.7% in 2020. The growth forecast “has collapsed sharply”, commented Mr Moscovici, before indicating that this new growth forecast would have an impact on public finances (see below). The Commissioner added that he would continue to dialogue with the Italian authorities on this subject.
The Commission also expects a growth rate of 1.3% in France this year compared to 2.1% in Spain. For Greece, the rate should be 2.2%.
Unemployment is steadily declining. Although economic activity growth started to slow at the end of last year, the unemployment rate in the EU continued to fall. In March 2019, it reached a historically low level since the monthly statistics were created, reaching 6.4% of the labour force.
The Commission expects employment growth to slow down over the next two years, but the unemployment rate in the EU is expected to continue to fall to 6.2% of the labour force in 2020. On the euro area side, these rates are reportedly higher, namely 7.7% and 7.3% of the working population in 2019 and 2020.
Unemployment rates are also expected to remain disparate in the EU this year, at 18.2% and 13.5% of the labour force respectively in Greece and Spain, compared to 2.2% in the Czech Republic.
A contained inflation rate. In the European Union, the Commission assumes that the inflation rate should be 1.6% in 2019 and 1.7% in 2020, up from 1.9% in 2018.
For the euro area, both in 2019 and 2020, the Commission estimates that the inflation rate will reach 1.4%, up from 1.8% last year.
Continuation of public debt reduction. Despite a slowdown in economic growth, the Commission expects public debt-to-GDP ratios to decline in the EU and the euro area. It projects that this average ratio in the EU will reach 80.2% and 78.8% of GDP respectively in 2019 and 2020, compared to 81.5% of GDP last year. Across the euro area, it is expected to go from 87.1% of GDP last year to 85.8% and 84.3% of GDP in 2019 and 2020.
The situation in Italy is being monitored with particular attention, as at the end of last year it recorded a public debt ratio estimated at 132.2% of GDP. For the Commission, on a no-policy change basis, this rate will be 133.7% and 135.2% of GDP in 2019 and 2020. Greece, the EU's most indebted country in relative terms, is expected to see its public debt decline from 181.1% of GDP in 2018 to 168.9% of GDP in 2020.
Increase in the government deficit. On the other hand, the trend in the government deficit component is upward. Indeed, the average nominal government deficit in the EU is expected to increase from 0.6% of GDP in 2018 (see EUROPE 12240/15) to 1% of GDP in 2019 and 2020, as is the euro area deficit, which is also expected to increase from 0.5% of GDP in 2018 to 0.9% of GDP in 2019 and 2020.
The Commission explains these increases by the slowdown in growth and the conduct of expansionary fiscal policies in some states.
There is also little homogeneity between Member States in terms of the budgetary situation. For example, Luxembourg and the Netherlands are expected to record nominal budget surpluses of 1.4% of GDP this year, while the nominal deficit rate is expected to reach 3.5% and 3.1% of GDP respectively in Romania and France (not taking into account the latest measures announced by the French President in response to the yellow vest crisis). It should be noted that Spain is expected to record a nominal deficit rate of 2.3% of GDP in 2019 and is expected to be the last EU country to emerge from the corrective arm of the Stability and Growth Pact this year.
As regards France and Italy, the structural deficit rates will be observed with more emphasis in the near future, as both countries are at risk of not complying with the rules of the preventive arm of the Stability and Growth Pact this year, namely a reduction in the structural deficit of 0.6% of GDP per year (see EUROPE 12161/13, 12163/1).
For France, the Commission now estimates that the structural deficit will stabilise this year compared to 2018 and will fall by 0.1% of GDP next year. For Rome, the institution expects the structural deficit to deteriorate by 0.2% of GDP between 2018 and 2019 and by 1.2% of GDP between 2019 and 2020. Possible procedures to sanction these figures should not be considered until 2020. (Original version in French by Lucas Tripoteau)