The European Commission now expects 1.3% growth for the eurozone this year, down from 1.9% in its previous forecast. This downward adjustment doesn’t come as a surprise, considering the declining trend of several survey indicators. The recent performance of these indicators in tracking GDP growth is mixed, which makes the assessment of the current growth momentum challenging.
The European Commission has joined the IMF and private sector forecasters in revising downwards the growth outlook for the eurozone this year. GDP is now expected to grow 1.3% versus a previous forecast of 1.9%. The revision is significant and reflects, amongst other factors, trade tensions, slower foreign growth, in particular in China, Brexit uncertainty. By coincidence, on the very same day that the Commission published its Winter Forecast, the Bank of England cut its forecast for UK growth this year from 1.7% to 1.2%, which corresponds to the weakest level since 2009. The cost of Brexit uncertainty becomes increasingly visible. These forecast revisions don’t come as a surprise: after all, survey indicators had been declining for several months in a row. This is illustrated in the charts which show three important indicators for the eurozone: the European Commission economic sentiment index (ESI), the Markit purchasing managers index for the manufacturing sector (PMI) and the IFO economic climate, which reflects the sentiment of economic experts. Part of the disappointment of the downward adjustments may come from expectations which simply had risen too high: at the end of 2017, there was increasing concern about a possible gap between soft data (survey indicators) and hard data (GDP).