The Strategist

European economy is losing optimism


01/28/2019 - 09:20



Estimates of the future growth of the euro area countries continue to decline. As follows from a survey of the European Central Bank (ECB), now experts on average predict EU GDP growth by 1.5% in 2019 and 2020, which is 0.3 and 0.1 percentage points (pp) lower than in the fourth quarter of last year. The first forecast for 2021 (1.4%) also implies a further decrease in the dynamics. The estimate of the probability of growth above 1.5% was lowered from 76% to 53% for the 2019, and from 64% to 50% for the year 2020.



pixabay
pixabay
Most respondents referred to deterioration of macroeconomic data at the end of 2018, which is why a weaker growth is expected at the beginning of 2019. Risks are mainly related to external factors. In particular, the UK’s withdrawal from the European Union without a deal was noted as the most dangerous, and among others were escalation of the trade conflict between China and the United States and the slowdown in growth in China.

Recall that last week the International Monetary Fund also changed its forecast for the euro zone, reducing it by 0.3 pp to 1.6% for 2019 (it remained unchanged for 2020 - 1.7% ), including for Germany, the forecast was reduced by 201 pp for 2019, to 1.3% (for 2020 it was kept at 1.6%), due to weak domestic demand and a reduction in industrial production by against tightening environmental regulation for cars. The score for Italy for 2019 has also been lowered by minus 0.4 pp, to 0.6%. For the UK, the forecast did not change - 1.5% and 1.6%, respectively, but this estimate took into account a compromise with the EU on Brexit, the fund indicated.

Together with the expectations of GDP growth, experts from the ECB survey lowered expectations for long-term inflation: from 1.9% to 1.8%, and for the next three years - to 1.5%, 1.6% and 1.7% (minus 0.2 pp to 2019th and minus 0.1 pp to 2020). The revision is also associated with a decrease in oil forecast prices (on average by more than 15%) - to $ 63.6 per barrel in 2019, $ 64.3 in 2020, and $ 66 in 2021. At the same time, unemployment expectations did not change - experts on average forecast its consistent decline from 7.8% in 2019 to 7.5% in 2021 (by 0.1 pp to 7.6%, only the estimate increased for 2020). As a result, respondents now predict that the ECB will keep the key refinancing rate at zero until at least the fourth quarter of 2019, but nonetheless the euro will be strengthening against the dollar until 2021.

source: reuters.com




More
< >

Monday, April 22nd 2019 - 12:49 Chinese economy gets a head start in Q1

Friday, April 19th 2019 - 08:34 Top 10 largest financial hubs of the world