European Commission raises 2019 economic growth forecast to 2.8 percent

The European Commission is expecting economic growth in 2019 to remain below 3 percent.
The European Commission is expecting economic growth in 2019 to remain below 3 percent. Source: Scheffbuch/Caro/Scanpix

According to the European Commission's spring economic forecast, economic growth is expected to continue at a slower pace. The Commission nonetheless raised Estonia's economic growth forecast by 0.1 points to 2.8 percent.

The European economy is forecast to continue expanding for the seventh year in a row in 2019, with real GDP expected to grow in all EU member states. Regarding Estonia, the European Commission said that strong, broad-based growth is expected to continue in 2019.

In its winter outlook, the Commission had lowered Estonia's 2019 economic growth forecast by 0.1 percentage points to 2.7 percent; however in its spring outlook, the economic growth forecast was raised back to 2.8 percent, while leaving next year's growth estimate unchanged at 2.4 percent.

With a labor market close to full employment and moderating inflation, increasing real incomes will uphold private consumption. According to the forecast, the general government balance is projected to remain in deficit, at -0.3 percent of GDP in 2019 and -0.5 percent of GDP in 2020.

The weaker-than-expected budget position is caused by the continued fast growth of expenses, while at the same time, a decrease in budget income is expected due to the cooling of the economic environment.

The recent slowdown in global growth and world trade, together with high uncertainty about trade policies, is weighing on prospects for GDP growth in 2019 and 2020. As global trade and growth are expected to remain weaker this year and next compared to the brisk pace seen in 2017, economic growth in Europe will rely entirely on domestic activity. 

EU economy to grow by 1.4 percent

More Europeans are employed now than ever, and employment growth is expected to continue, albeit at a slower pace. This, together with rising wages, muted inflation, favorable financing conditions and supportive fiscal measures in some member states, is expected to buoy domestic demand. All in all, GDP is forecast to grow by 1.4 percent in the EU this year and 1.2 percent in the euro area.

In 2020, adverse domestic factors are expected to fade and economic activity outside the EU to rebound, supported by easing global financial conditions and policy stimulus in some emerging economies. GDP growth next year is forecast to increase slightly to 1.6 percent in the EU and 1.5 percent in the euro area. The figures for 2020 also benefit from a higher number of working days that year.

Labor market conditions continued to improve despite the slowdown in growth towards the end of 2018. While still too high in certain member states, unemployment in the EU — at 6.4 percent in March 2019 — has fallen to the lowest rate recorded since the start of the monthly data series in January 2000. Unemployment in the euro area is currently at the lowest rate since 2008.

Over the next two years, the rate of employment growth is expected to slow as the impact of more moderate growth takes its toll and temporary fiscal measures in some member states fade. The unemployment rate is expected to continue to fall in the EU in 2019, and is set to reach 6.2 percent in 2020. The unemployment rate in the euro area is forecast to fall to 7.7 percent in 2019 and to 7.3 percent in 2020, lower than it was before the crisis began in 2007.

Inflation in the EU is expected to fall to 1.6 percent this year before rising to 1.7 percent in 2020. With energy price inflation expected to moderate further in the coming quarters and little sign that higher wage growth has been fueling underlying price pressures, euro area inflation is forecast to reach 1.4 percent in both 2019 and 2020.

Public debt, meanwhile, is projected to continue falling despite lower growth. Debt-to-GDP ratios are forecast to fall in most member states in 2019 and 2020 as deficits remain low and nominal GDP growth should remain higher than the average interest rate on outstanding debt. 

Assuming no policy change, the debt-to-GDP ratio of the EU is forecast to fall, from 81.5 percent in 2018, to 80.2 percent in 2019 and 78.8 percent in 2020. The euro area's aggregate debt-to-GDP ratio should fall from 87.1 percent in 2018, to 85.8 percent in 2019 and 84.3 percent in 2020.

The EU's aggregate government deficit is expected to increase from 0.6 percent of GDP in 2018 to 1 percent in both 2019 and 2020. It is also expected to increase in the euro area, from 0.5 percent of GDP in 2018, to 0.9 percent in 2019, and to remain unchanged in 2020, assuming no policy change. The increase this year is attributable primarily to slower GDP growth and expansionary fiscal policies in some member states.

Editor: Aili Vahtla

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