Brussels, 8 November 2018
Then it's very good news, the improvement of the job market continues. The level of employment hits a new historical record and unemployment continues to decline. This positive trend is now reflected in what we have been waiting for for some time for higher wage increases, especially in Member States with current account surpluses, which was expected and demanded. This is good news for household consumption and growth, as well as for the rebalancing of competitiveness in the euro area, which was part of the imbalances that we had to absorb and continues to be part of it.
Third, core inflation is projected to increase gradually, driven by higher wages. The impact of energy prices on inflation, which should not be underestimated, would be largely temporary.
Fourth, the direction of fiscal policy in the euro area as a whole is expected to become slightly expansionary again in 2019 before returning, as this year, to a neutral stance in 2020. The euro area deficit, however, would remain well below of 1% and the debt in general would continue to shrink in terms of percentage of GDP.
Finally, last message, we must take into account, significant and interrelated risks weigh down on our forecasts, which should rather be seen as a high point. They include the tightening of international financing conditions, which could result from overheating of the US economy, I do not take into account the elections yesterday. In addition, trade tensions are not yet eased and the negative effects on international trade and global growth could be significant in case of escalation, which nobody wants, beyond the United States and China. So much for general messages.
After recording its strongest growth in a decade in 2017, the European economy is experiencing more moderate growth this year, as confirmed by the latest estimates published by Eurostat. But we must not lose sight of the fact that internal fundamentals remain generally favorable. In the absence of major disruptive elements, the indicators suggest that, in the short term, economic growth should continue, albeit at a slightly slower pace.
Several factors are expected to support private consumption next year: the continued improvement of the labor market, an acceleration of wages, which is already being observed, and the budgetary measures planned by some Member States.
For your part, as you know, the European Central Bank has indicated that the normalization of monetary policy would be gradual, which means that the financial conditions should therefore remain sufficiently favorable to continue to encourage investment. So consumption on one side, investment on the other, the drivers of demand remain largely on.
At the same time, less favorable exogenous factors should weigh on activity over the next two years. The current slowdown in global trade is already there, already affecting the growth of our exports with a visible impact on business confidence that could weigh down on investment.
In addition, production constraints are beginning to weigh on the economy of some Member States. In particular, some labor markets experience tense situations that can lead to a slower pace of job creation or job creation than they could be if this were not the case.
Global economic activity remains strong, but growth rates are more divergent across countries and regions. In particular, we must turn to some emerging countries such as Turkey or Argentina, where the next G20 will be held in a few days, were struck this summer by a tightening of financial conditions. Other emerging countries face geopolitical tensions and internal political uncertainties. It should be noted that the United States is experiencing strong economic development, which benefits from the fallout from its fiscal stimulus.
In total, according to our forecasts, which are not very different from those of other international institutions, the growth of the world economy outside the EU would be 4.0% in 2018, slightly lower than our spring forecasts. .
For 2019 and 2020, we expect a slightly more modest growth of 3.8%. This reflects the worsening economic outlook in most emerging countries. On the other hand, the maturing of the economic cycle and a more restrictive monetary policy in most advanced countries - outside the EU - should weigh on their future growth, especially in 2020.
We have also lowered our perspective on the dynamics of international trade. After an exceptional growth in global non-EU imports of 5.5% in 2017, we are actually expecting a slight slowdown this year to 4.8%, a slowdown that will continue in the following years (+ 4.0% in 2019 and + 3.7% in 2020) . You see that the impact of a protectionist climate is gradually being felt.
In the financial markets, we have seen in recent months that investors are more cautious about risky assets globally. This behavior is likely due to trade tensions and the rise in interest rates resulting from monetary tightening, tapering, in the United States. There is also a decline in business confidence, as evidenced by the recent decline in stock market indices.
Sovereign debt interest rates in Europe remained fairly stable, with the exception of the Italian debt, which has increased since the budget announcements in September, but has increased significantly in recent months. However, this increase remains quite moderate in a historical perspective and has had no contagious effect on other countries.
In the equity markets, the European banking sector as a whole posted lower performance than other sectors. This underperformance is not only due to the tensions on the Italian debt but also to other factors such as recent shocks in emerging markets as well as the highly cyclical nature of bank performance.
Monetary conditions in the euro area should remain accommodative despite the announced prospects for a gradual normalization of monetary policy. This policy contrasts with that observed in the United States, where the Federal Reserve is expected to continue tightening this year and the following year, which is not illogical since the economic situations in the United States and Europe are not comparable and are not to the same degree.
Monetary policy in the euro zone and its efficient transmission to the banking sector, which is continuing to improve, should help maintain low financing costs for the private sector.
I switch to employment growth in Europe.
At 8.1% in September, unemployment in the euro area is at its lowest since 2008, while at 6.7% in the EU it is at its lowest since 2000. Employment both in terms of the number of people working and working hours has continued rising steadily since the beginning of the year despite the slower pace of economic growth. The so-called "slack" in the labor market, as illustrated by a broader view of the underemployment, such as people who work part-time, has also reduced further.
Over the next two years, growth in the growth rate of increasing labor in the United States.
In parallel, underemployment should continue to recede, with still substantial differences across Member States.
Overall, job creation in the euro area will continue, and that is good news, at a slower pace from 1.4% in 2018 to 1.0% in 2019 and 0.9% in 2020. This, combined with steady growth in the labor force, is expected to limit further declines in unemployment compared to previous years.
Euro area headline inflation rose slightly above 2% in the third quarter of this year, driven by the price, which is assumed to peak in the last quarter of 2018, we are still in that phase. Due to the upward revision of the inflation rate in the euro area in 2018 and 2019 has been revised up to 1.8%. It is expected to recede to 1.6% in 2020.
Core inflation, which excludes energy and unprocessed food prices, has been relatively muted so far in 2020. As mentioned in my introduction, this trend of rising core inflation is to a large distance driven by rising wages tightening labor markets.
If I turn to growth, all EU Member States are forecasting to continue growing in 2019 and have a slightly slower pace than in 2018.
Among the largest EU economies, GDP growth in 2019 is expected to be above average EU (of 1.9%): in Poland at 3.7%, in the Netherlands at 2.4%, and 2.2% in Spain.
Growth in Germany is expected to remain strong, although slightly below the EU average at 1.8% in 2019, after 1.7% in 2018. It should be supported by robust domestic demand in a context of strong labor markets and some fiscal loosening, while the external environment is becoming less supportive for German exporters.
In France, growth would be 1.6% in 2019 after 1.7% in 2018. Private consumption would regain strength and become a solid growth engine, offsetting some slowdown in investment.
In Italy, the planned fiscal expansion is expected to support demand moderately in 2019. GDP is set to expand by 1.2% next year after 1.1% in 2018. I will come back to our projections for Italy later in my presentation.
In Spain, growth is expected to remain above the EU average, albeit less markedly than in the preceding years. Growth is set to reach 2.2% in 2019, the moderation compared to 2018 set to be driven by a slowdown in private consumption. Unemployment is forecast to continue declining.
In the UK, growth is expected to remain subdued, at 1.2% in 2019. Private consumption growth is forecast to remain as low as possible. Heightened uncertainty means that business growth is likely to remain constrained. Let me remind you that this report is still based on a purely technical assumption of status quo in relation to trading between the EU27 and the UK. We do not want to feed any kind of speculation.
The euro area's budget is related to continuing growth, and to economic growth. This expansion is set to come to a halt in 2019 as the fiscal stance, measured by the change in the structural balance, is slightly larger than before.
More precisely, the euro area's budget deficit is set to increase from 0.6% of GDP in 2018 to 0.8% in 2019, before falling back to 0.7% in 2020, so you see, well under 1%, based on our usual no-policy -change assumption.
Debt-to-GDP ratios are projected to continue falling, supported by debt-decreasing primary surpluses and continued economic growth.
The euro area debt-to-GDP ratio is set to fall from 86.9% in 2018 to 82.8% in 2020.
In the EU 28, the debt to GDP ratio is set to go from 81.4% in 2018 to 77.6% in 2020.
Now I turn to the fiscal year, 2019 is set to be the second year since the beginning of the Economic and Monetary Union in which all the euro-area governments manage budget deficits of less than 3% of GDP, as mandated by the Treaty.
Within the EU, only Romania shows a deficit forecast larger than 3% of GDP in 2019.
Debt-to-GDP ratios are projected to decline in almost all EU Member States, with three exceptions: Lithuania and Romania, where they are set to increase, and Italy, where it is set to remain stable.
As regards Italy, you will see that they are projected to suffer from a deficit in the world, with a deficit forecast for 2019 being 2.9%, and it will be 3.1% in 2020, and . This is largely due to the fact that it is more conservative and more I can explain these differences more precisely in the Q & A, knowing that this is obviously a delicate point. Let me just underline what we are budgeting for in the draft Budgetary Plan we received on 16 October - the situation may be different depending on what we think , as you know,
The balance of risks to the growth outlook is tilted to the downside. Interrelated external and domestic risks cast shadows over the other benign economic outlook as they are materialized, which is more likely to happen in 2020 than in 2019. Let me mention some of these risks:
First, overheating in the US, it is fueled by pro-cyclical fiscal stimulus, which could lead to higher rates of inflation than expected, with negative spillovers in the US, where corporate leverage is high, but also on emerging markets, which are vulnerable to US dollar-denominated debt. The EU was able to give its strong trade links and banks' exposure.
Second, the expected widening of the current account could exacerbate trade tensions with China, raising the risk of a disorderly adjustment, given the high corporate debt and financial fragility. Increased trade tensions would hurt the EU, which is highly integrated in global value chains, affecting confidence and therefore investment.
Third, within the EU, doubts about the quality and sustainability of public finances in highly indebted countries.
Finally, I'm not going to expand on that.
To conclude, the European economy is growing rapidly with last year. Unemployment, and again, this is very good news, continue to fall to levels not seen before the crisis. In the euro area is set to continue declining, with the deficit remaining well below 1% of GDP.
But as well as Europe, there are many risks weighing on this outlook. And that's why it's so important that the policymakers both here in Brussels and in the United States are so important that the euro area is strong enough to deal with whatever the future might be. and strong Eurozone reform package.
And now I am ready to answer your questions.
NOTE: Pierre Moscovici , born 16 September 1957, is a French politician currently serving as the European Commissioner for Economic and Financial Affairs, Taxation and Customs. Previously he served as a senior French politician, as Minister of Finance from 2012 to 2014 and as Minister for European Affairs between 1997 and 2002.
[Source: European Commission -/- Media Relations]
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