Euro area is set to log strong growth this year, but the momentum may moderate slightly as monetary stimulus is gradually withdrawn and global trade growth eases somewhat, the European Commission said.
In the Spring forecast released Thursday, the executive arm of the European Union predicted gross domestic product growth in the currency bloc to be 2.3 percent this year, before easing to 2 percent next year.
While these are the same growth rates as projected in the Winter interim forecast, the growth drivers behind them have changed somewhat and the balance of risks has shifted meaningfully to the downside, the EU said.
Domestic upside risks have faded and downside risks to the global outlook have increased significantly in both the short and the medium term.
The largest euro area economy was expected to continue growing steadily on the back of robust domestic demand, and strong foreign trade. Germany’s real GDP was expected to increase by 2.3 percent this year and by 2.1 percent in 2019.
France’s economic activity was forecast to accelerate further in 2018, despite the weak start to the year. The EU forecast 2 percent expansion in 2018 and 1.8 percent growth in 2019.
Spain’s growth outlook for 2018 and 2019 was set to be supported by measures contained in the 2018 draft budget law. Growth for 2018 was seen at 2.9 percent, 0.3 percentage point higher than projected in the winter forecast. Further, growth was expected to decelerate in 2019, to 2.4 percent.
The Italian economy was expected to continue to grow at the same pace of 1.5 percent this year, largely supported by domestic demand. As support from tailwinds is expected to wane and the output gap closes, GDP growth is set to moderate to 1.2 percent in 2019.
The forecast for Eurozone headline inflation was unchanged since the winter interim forecast at 1.5 percent in 2018 and 1.6 percent in 2019. Monetary conditions in the euro area are expected to remain very accommodative.
Flash data from Eurostat showed on Thursday that Eurozone inflation eased slightly in April on slower increase in services cost. Inflation slowed to 1.2 percent from 1.3 percent in March. The rate was expected to remain unchanged at 1.3 percent.
Core inflation that excludes energy, food, alcohol and tobacco, slowed more-than-expected to 0.7 percent from 1 percent in March. Economists had forecast a rate of 0.9 percent for April.
April’s unexpected fall in inflation partly reflected Easter timing effects, providing some hope that it will prove temporary, Jessica Hinds, an economist at Capital Economics, said. But with underlying price pressures subdued, the European Central Bank is expected to continue to tread cautiously in normalizing monetary policy.
Another report from Eurostat showed that producer price inflation increased to 2.1 percent in March from 1.6 percent in February. Excluding energy, producer price growth eased to 1.4 percent from 1.6 percent in February.