Croatia welcomes European Commission's revised GDP growth forecast

Daniel Fowler
July 12, 2019

The commission confirmed its prediction that economic growth in the euro zone would slow this year to 1.2 per cent from 1.9 per cent in 2018. Growth is expected to return to 1.4% next year, less than the 1.5% the commission predicted earlier. It also benefited from fiscal policy measures, which boosted household disposable income in several Member States. These have continued to weigh on confidence in the manufacturing sector, which is the most exposed to worldwide trade, and are projected to weaken the growth outlook for the remainder of the year.

"This could lead to rapid tightening of global financial conditions", he added.

Valdis Dombrovskis, vice president for the euro and social dialogue, said: "All EU economies are still set to grow this year and next, even if the robust growth in Central and Eastern Europe contrasts with the slowdown in Germany and Italy".

Eurozone's GDP forecast for 2019 remained unchanged as 1.2% for 2019, the commission noted in a press release.

After inflation reached 1.7% in 2018, it faced a period of limited activity, with there being little movement in the rate during the first months of 2019.

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Estimates of overall inflation in the European Union and the euro area were down 0.1 percentage points this and next year, mainly due to lower oil prices and slightly weaker economic prospects.

During the first quarter of 2019, this domestic demand was heavily supported by public consumption and investment, as private consumption growth decreased slightly. "Due to the assumed fall in fuel prices, energy prices are expected to have a somewhat lower impact on inflation than previously forecast", the Commission said.

The report also said the euro remained slightly undervalued despite having appreciated a year ago, confirming a Reuters report last month. Finally, there are also significant risks surrounding near-term growth drivers and economic momentum in the euro area. Unlike investors, households' inflation expectations remained stable since the start of the year and were still close to a six-year high.

"There was broad agreement that, in the light of the heightened uncertainty. the governing council needed to be ready and prepared to ease the monetary policy stance further", read the minutes of the meeting, published four weeks after it was held in Lithuanian capital Vilnius.

Overall, the European economy is set for its seventh consecutive year of growth in 2019, with all Member States' economies due to expand.

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