Europe’s economy slows down, “but the fundamentals remain sound.” Unemployment expands – which is obviously a positive sign- but “amid global uncertainties” which could have a negative impact on national performance and on the internal markets. This is the situation in a multi-speed Europe. In fact, while East European Countries are growing more quickly, those in Central Europe (Germany and France) follow at a slower pace while Italy lags behind with the lowest GDP in the EU. The figures are contained in the Commission’s Winter Economic Forecast released by Pierre Moscovici, EU Commissioner for Economic Affairs.
Economic forecasts revised. EU economy “is expected to grow for the seventh year in a row in 2019, with expansion forecast in every Member State”, states the report presented by Commissioner Moscovici in the press office of the Berlaymont building, where the EU executive is headquartered. “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.” Economic activity “moderated in the second half of last year as global trade growth slowed, uncertainty sapped confidence and output in some Member States was adversely affected by temporary domestic factors, such as disruptions in car production, social tensions and fiscal policy.” As a result – Commission experts declared – gross domestic product (GDP) growth in both the euro area and the EU has slipped downwards: Euro area GDP is now forecast to grow by 1.3% in 2019 and EU GDP by 1.5%. For 2020 figures are respectively projected at 1.6% and 1.7%.
The situation at national level. “The European economy is set to continue to benefit from improving labour market conditions, favourable financing conditions and a slightly expansionary fiscal stance”, reads the Winter Interim Forecasts. “Among the larger Member States, downward revisions for growth in 2019 were sizeable for Germany, Italy, and the Netherlands.” These are the GDP forecast for 2019 and 2020 at national level: Germany 1.1% and 1.7%; Italy 0.2 and 0.8 (the only country with growth below 1%); Greece 2.2 and 2.3; Spain 2.1 and 1.9; France 1.3 and 1.5; Malta 5.2 and 4.6; Slovakia 4.1 and 3.5; Hungary 3,4 and 2,6; Poland 3.5 and 3.2; Romania 3.8 and 3.6; United Kingdom 1.3 and again 1.3.
Brexit uncertainty. Moscovici’s cautious words, as customary, are echoed by the remarks of Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue: “All EU countries are expected to continue to grow in 2019, which means more jobs and prosperity. Yet our forecast is revised downwards, in particular for the largest euro area economies.” This revision reflects “external factors, such as trade tensions and the slowdown in emerging markets, notably in China.” The Commissioner went on with a focus on the relations with the UK: ” The possibility of a disruptive Brexit creates additional uncertainty.” For Dombrovskis ” Being aware of these mounting risks is half of the job. The other half is choosing the right mix of policies, such as facilitating investment, redoubling efforts to carry out structural reforms and pursuing prudent fiscal policies.”
The Italian problem. “In the second half of 2018, the impact of less dynamic global trade on Italy was increased by weak domestic demand and investment. Uncertainties and the increase in the cost of financing have played their part.” Moscovici detailed the Italian situation. Uncertainties over economic policies, he said, slow down recovery. He underlined the necessary adjustments to the budget law last fall, to prevent Italy’s yield spread from reaching uncontrollable levels. Italy is thus subject to close scrutiny in Brussels, although the Commission does not intend to make further interventions before May’s European elections. Moscovici added: “It does not seem to me that the forecast Keynesian expansion” envisaged by the government “is materialising.” In other words, there has been no economic boom. The first reactions from Rome include those of Finance Minister Giovanni Tria, who excluded corrective budgetary measures, describing the situation not as a “recession” but as a “setback” of Italy’s economic system. PM Giuseppe Conte, prior to the release of the data from Brussels, remarked: “we reconfirm our growth forecasts.”