EBF economists forecast Euro area GDP growing by 1.2 percent in 2019 and by 1.4 percent in 2020

BRUSSELS, 15 May 2019 — The chief economists’ group of the European Banking Federation expects the Euro area economy to keep expanding, albeit close to potential for the time being. We foresee the Euro area GDP growing by 1.2 percent in 2019 and with a modest pick up to 1.4 percent in 2020.

• European banks see inflation subdued. We forecast an inflation rate of 1.3 percent in 2019 and 1.5 percent in 2020.
• Core inflation, projected to be 1.2 percent in 2019 and 1.4 percent in 2020, will gradually converge towards headline inflation.
• Labour markets will continue to improve over the forecast horizon. The jobless rate is seen at 7.7 percent in 2019 with a further improvement to 7.5 percent in 2020. 

Risks to the scenario

The CEG’s consensus remains surrounded by a number of both upside and downside risks.

1. Upside risks

• US economy to continue expanding, albeit at a lower pace together with signs of a stabilisation and recovery in China’s growth offsetting uncertainties in emerging countries. 
• Global economy gaining moderate momentum in 2020. Also, provided that international trade dispute does not intensify further, global trade will pick up again supporting the export economies in the Euro area. 
• Although a no-deal exit remains probable, Brexit negotiation extension could help bring an outcome that is economically acceptable.
• A rebound in Germany’s performance in the course of 2019 with, in particular, possible recovery of industrial production, mainly in the automobile sector.
• Fiscal policy in the Euro area is becoming more expansionary.

2. Downside risks

• Worsened trade outlook with rising trade tensions between the US and China triggering a trade battle that would harm global economy. The Euro area economy, that is relatively highly exposed to external trade, would be severely hit if EU-US trade frictions materialise and US tariffs are imposed on, for example, EU automotive exports.
• Upward pressure on oil prices coming mainly from an escalation of geopolitical risk, in particular in Iran and Venezuela.
• High debt levels and weak growth in Italy, Euro area’s third biggest economy.                                                                                                                                                       
• Brexit and the uncertainty around the final outcome remains a major concern.
• Weak manufacturing sentiment spreading to the broader economy.
• Political uncertainty at a broad European level with Eurosceptics gaining attraction in some countries ahead of European elections.

The risks to the growth outlook are tilted to the downside, according to the Chief Economists’ Group.

For more information:
Francisco Saravia, Advisor Prudential Policy and Supervision
f.saravia@ebf.eu
+32 2 508 3711