The European commission issued its Eurozone forecast update this week, only a couple of weeks later than the ECB, which had published its own forecasts in June.
Both authorities agree that economic growth in the Eurozone will be somewhat weaker in 2019 compared to 2018 (1.2%, compared to 1.9%) owing primarily to the unpredictable nature of US president, which may (or, may not!) lead to further trade wars between the EU block and its partner and ally from across the Atlantic.
The growth outlook for 2020 has also been revised down to 1.4%, from 1.5% that was originally forecast.
The weaker economic outlook contributed to a downward revision of inflation expectations, the Commission said, cutting its estimate to 1.3% for this year and next from the 1.4% it previously estimated for both years, thereby pushing the inflation rate further off the European Central Bank’s target of “close to, but less than 2%.”
Although in 1Q19 Eurozone GDP had temporarily rebounded, this was mostly due to extraordinary factors, such as the anticipation of the original BrExit date, which had led to exceptionally high demand from the UK.
The Commission’s outlook is generally in-line with the declining economic sentiment in the Eurozone over the last three months, reflecting the worsening sentiment in manufacturing, the sector that is probably the most susceptible to global economic headwinds.
That being said, with unit labor cost and oil price increases having already been incorporated into the cost structure of most manufacturers, any potential revenue increases will largely be translated into profits, thereby further enhancing the possibility of the Eurozone reaching its inflation targets in the not-too-distant future.