An economic outlook for Europe in 2020Economy 15 December 2019
The EU has survived its potential political crisis. The European elections were held and the highest institutions and bodies are now consolidated. The mandate of the Von der Leyen-led Commission is also confirmed by the Parliament, and now is time for Europe to get into shape for the forthcoming 2020. What will the next year look like in terms of economy? How will the global economic outlook affect EU’s growth? Who will be the key partners of the EU?
What role for the EU economy in 2020
At the beginning of this November, several news agencies have announced that the EU economy will stagnate or even not be so growing in the next year. Despite the numerous predictions which have been assuring an average EU citizen that the Union’s economy will indisputably grow, it seems that this dream is slightly fading. The Eurozone group announced that the EU economy will be stagnating in 2020. The EU growth in the next year is estimated to be as low as in 2013. Some claimed that trade uncertainty is the circumstance to be blamed the most for the weighing down of the Union’s currency – Euro.
The EU Commission announced that Euro area gross domestic product (GDP) is to be expanded by 1.1% in 2019 and by 1.2 percent in 2020 and 2021. Compared with the projections the European Union’s executive arm published in July, the growth forecast has been weighed down by 0.1% for 2019 and 0.2% points for 2020. The European economy is in its seventh consecutive year of expansion, but the bloc now “looks to be heading towards a protracted period of more subdued growth and muted inflation,” the Commission said in a statement.
The Commission further announced that trade tensions between the USA and the PR China and high levels of policy uncertainty, especially with respect to trade, have dampened investment, manufacturing and international trade.
The Vice President of the European Commission for the Euro and Social Dialogue Valdis Dombrovskis said the bloc would face “troubled waters ahead,” including “a period of high uncertainty related to trade conflicts, rising geopolitical tensions, persistent weakness in the manufacturing sector and Brexit”.
Growth in other emerging European economies is forecast to moderate to 3.7% and 3.1% in 2019 and 2020 respectively, owing to spill overs from the slowdown in more advanced economies on the continent and growth naturally contracting to sustainable levels after exceeding capacity, reported CNBC.
The ‘two-speed’ economy (manufacturing versus other sectors) also has implications for the relative performance of Member States. Those with a high share of manufacturing value added and a high exposure to exports of industrial goods have been more severely affected than other economies. Accordingly, the largest impact on gross value added in the manufacturing sector was seen in Germany, whereas gross value added in the other large Member States remained fairly stable. By contrast, the expansion of manufacturing continued in several smaller Member States in Central and Eastern Europe, as expected in previous analyses. Moreover, the trade tensions between the US and China are also affecting European carmakers with cross-border production chains, such as German car companies which produce cars in the US for sale in China. In addition to the higher tariffs applied to some of their products, car demand in important export markets is also declining. In connection with the threat of US tariffs on the import of cars and car parts, this could be described as a ‘perfect storm’ for European car producers. Due to cross-border production, the impacts would be felt well beyond Germany.
At the end, the EU labour market situation is expected to remain solid with further but more moderate increases in employment, in spite of the low pace of output growth. In combination with the ongoing growth of the labour force this should slightly lower the aggregate euro area unemployment rate in 2020 and 2021.
What does the EU expect to achieve with its economy remains to be seen in 2020, but one is sure: the uncertainty coming from the political milieu will immensely influence the economic and financial occurrences within the Old Continent.