German growth forecast cut as economic uncertainty continues
Pierre Moscovici - Photo EC
(BRUSSELS) - GDP growth in Germany is forecast to be particularly subdued this year, as global uncertainties continue to weigh on Europe's economy, according to the EU Commission's latest economic forecast Tuesday.
The Spring 2019 Economic Forecast shows every EU Member State's economy growing growing over this year and next, but at a slower pace.
The Commission says the European economy is showing resilience in a difficult external environment, which includes trade tensions. But risks to the outlook remain pronounced, said EC vice-president Valdis Dombrovskis: "On the external side, these include further escalation of trade conflicts and weakness in emerging markets, in particular China. In Europe, we should stay alert to a possible 'no-deal Brexit', political uncertainty and a possible return of the sovereign-bank loop."
Economic affairs Commissioner Pierre Moscovici warned against lapsing into protectionism, "which would only exacerbate the existing social and economic tensions in our societies."
The forecast shows that in 2019, among the largest EU economies, GDP growth in 2019 is expected to be above the EU average of 1.4% in Poland at 4.2%, in Spain at 2.1% and in the Netherlands at 1.6%.
GDP growth in Germany is forecast to be particularly subdued this year at 0.5%, largely due to the weakness in manufacturing and particularly in the car industry. The German economy which is very dependent on exports, has also been particularly hit by the slowdown in external demand. However, we expect growth to recover to 1.5% next year, in line with the average for the euro area.
In France, growth is forecast to reach 1.3 % this year and to increase to 1.5 % next year.
In Spain GDP growth is forecast at 2.1% this year and 1.9% next year. Slowly moderating private demand should be offset by a gradual rise in the contribution of net exports to growth.
Italy slipped into a mild contraction in the second half of last year, as the slowdown of global trade and weak manufacturing spread to the domestic economy.It is expected to grow only by 0.1% this year, picking up to 0.7% in 2020.
In the UK, prospects remain relatively subdued. Growth is forecast at 1.3% in both 2019 and 2020. Uncertainty over the future relationship with the EU27 is set to continue weighing on investment. The UK forecasts are based on a purely technical assumption of an unchanged trading relationship with the EU27.
Central and eastern European Member States are expected to decouple to some extent from the weaker momentum in the larger EU economies.
The euro area's general government deficit declined last year to its lowest level since 2000: 0.5% of GDP. This year the Commission is expecting it to increase to 0.9% of GDP in 2019 and to stabilise in 2020. In the EU as a whole, the deficit is projected to increase from 0.6% of GDP in 2018 to 1% in 2019 and 2020.
The rise in the deficit this year is due to lower GDP growth but also to expansionary fiscal policies in some Member States. As a consequence, compared to last year the fiscal stance for the euro area is expected to turn slightly expansionary in 2019 and 2020.
Debt-to-GDP ratios are projected to continue falling, supported by debt-decreasing primary surpluses as well as nominal GDP growth remaining higher than the average interest rate on outstanding debt.
The euro area debt-to-GDP ratio is set to fall from 87.1% in 2018 to 84.3% in 2020.
In the EU 28, it is set to fall from 81.5% in 2018 to 78.8% in 2020.