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Weaker economic outlook for the eurozone 1/8/2019

After strong economic growth in 2017, the eurozone has been slowing down. Rising uncertainties in Europe and elsewhere weigh on the economic environment, in particular on Germany, the eurozone’s main growth engine.

Risks are building up for the economic outlook, but the labour market still remains a bright spot.

TRANSCRIPT // Weaker economic outlook for the eurozone : January 2019

3 QUESTIONS

 

François Doux: Three questions on the Eurozone economic situation.

Louis Boisset, hello.

 

Louis Boisset: Hello François.

 

François Doux: A key and obvious trend, the Eurozone economy is slowing, with growth of barely 0.2% in the third quarter of 2018. Economic indicators are also falling. What are the reasons for that?

 

Louis Boisset: Firstly, we should bear in mind that the slowdown was partly expected after strong economic performance in 2017. However, the extent of the slowdown has been surprising. There are several possible explanations for this poor performance. Firstly, increasing uncertainty has been a global trend, in both political and trade terms. But there are also more specific reasons, such as difficulties in the German auto sector in the third quarter, which dragged down growth. German Q3 growth was negative for the first time since early 2015. We saw slightly negative growth in Italy as well.

 

François Doux: For my second question, can you tell us about more secular indicators, Louis?

 

Louis Boisset: Yes, there are several of them, and increased trade tensions in particular are among structural risks, especially for countries like Germany that depend on their export sector. We can moreover note that foreign trade has weighed on Eurozone growth since the start of 2018, whereas it significantly supported it in 2017. Taking a wider view, we should keep in mind that escalation of trade tensions could weigh on economic agents – consumers and businesses – confidence and that would eventually cause a sustained drop in aggregate domestic demand, i.e. consumer spending and investment.

 

François Doux: Aren’t there some indicators that can give us a little optimism?

 

Louis Boisset: Absolutely. Firstly, the labour market is improving. The unemployment rate has been falling steadily and is now at its lowest level for 10 years. The employment rate has seen a sustained rise and is now above its pre-crisis level, while Eurozone wage growth has been accelerating since mid-2016. That acceleration in wages should support consumer spending, which would in turn be beneficial for jobs.

 

François Doux: My third and final question: what are your macroeconomic forecasts for 2019-2020?

 

Louis Boisset: We expect the slowdown to continue, with economic growth of 1.4% in 2019 and 1.2% in 2020. We expect inflation at 1.8% in 2019, and to fall slightly to 1.5% in 2020. However, core inflation should strengthen, because of faster wage growth.

 

François Doux: Louis Boisset, thank you.

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