Annual growth forecasts have been supported by surprising
levels of growth in the first quarter. However, persisting
uncertainty will continue to weaken overall growth in Europe.
In the first quarter of 2019, euro area GDP growth picked
up for the second consecutive quarter and increased by
0.4%. In the EU, GDP grew by 0.5%, and was higher than
the 0.3% seen in Q4 2018. In both areas, this represented
the 24th consecutive quarter of expansion. In Germany,
there was positive growth in GDP, after two quarters of
either contraction or stagnation. In Italy, there was also
an improvement in GDP, as it emerged from the recession
experienced in the second half of 2018. However, there
is evidence that these stronger-than-expected outturns
reflected a number of temporary or one-off factors. These
included mild weather, which lifted construction activity,
particularly in Germany. Also, there was a rebound in car
sales in the euro area following disruptions in the second
half of 2018 related to new test procedures. There was
a substantial increase in goods exported to the United
Kingdom, due to companies stockpiling in anticipation of
the original Brexit date at the end of March. Finally, growth
also benefited from fiscal policy measures, which boosted
disposable household incomes in several Member States.
Looking ahead, private consumption is expected to remain
strong, supported by a number of factors. This includes
above-average consumer confidence as well as a rise in net
wealth, due to rising house prices, stock market gains and
growing real incomes. Investment is expected to continue
expanding, but at a slowing rate of growth. For investment
outside of the construction industry, a number of factors
are set to weaken momentum. This includes weaker
trade, persisting policy uncertainty and a decline in profit
margins. The latter reflects the fact that higher wage costs
are not being matched by increased productivity growth.
Weak trade and policy uncertainty are also expected to
continue to have a drag effect on export-orientated and
capital-intensive sectors. Business investment may also be
dampened by both the recent decline in capacity utilisation
in manufacturing, and the end of targeted fiscal incentives
in some European States.
Overall, euro area GDP growth is forecast to slow from 1.9%
in 2018 to 1.2% in 2019, before picking up again to 1.4%
in 2020. This is on the back of a moderate improvement
in global growth and a higher number of working days in
some Member States. Overall, this means that the GDP
growth forecast for this year remains unchanged. However,
this apparent stability on an annual basis masks some significant
shorter term changes. This includes the surprising
growth levels in the first quarter, offset by weaker growth
expected in the second half of 2019. All EU Member States
are expected to experience growth in both 2019 and 2020.