Economy: EU Commission warns of risks for Europe's economy


AFear of Brexit, the British hailed vigorously in the spring, boosting exports across the EU. The winter was milder than expected, benefiting the construction industry, especially in Germany and Italy. Auto sales picked up again after the excitement over new diesel exhaust test procedures had eased somewhat. In short, the first quarter has gone better than the economists had expected the EU Commission.

Nonetheless, the European Commission does not see any reason for a happy dance. On the contrary, the economic experts of the Brussels authority have even slightly dampened their economic forecast for 2020. The fear is reversed in the Commission that international tensions in trade and politics will continue to weigh on growth in Europe in the longer term. Trade disputes and political uncertainty put the European economies to the test, EU finance commissioner Valdis Dombrovskis said in Brussels.

In the spring, the Commission of the EU had predicted an increase of 1.7 percent in gross domestic product (GDP) without the United Kingdom. Now Dombrovskis and EU Economic Commissioner Pierre Moscovici expect only 1.6 percent increase.

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In their summer forecast, they also lowered the outlook for the eurozone from 1.5 to 1.4 percent in 2020. In 2019, growth in the euro area is expected to remain at 1.2 percent, while the entire EU is expected to grow by 1.4 percent due to stronger growth in the East.

In the first quarter of 2019, the main drivers were one-time factors. Moscovici and Dombrovskis therefore do not believe that the surprisingly good start to the year continues. The good prospects for 2020 also have a profane reason: next year, workers have to work more, so production is higher. Because 2020 is a leap year, also fall several holidays on a weekend. For example, German workers have to spend three more days in the office or at the workbench because October 3 and Christmas Day fall on a weekend.

BASF calculates 30 percent less sales

But within the EU there are clear differences. Especially in Central and Eastern Europe, but also smaller countries such as Ireland and Malta, growth is well above average. Hungary and Poland, for example, are likely to deliver 4.4% of GDP each in 2019, Romania 4.0%, Malta 5.3%. In Germany, the largest economy in the EU, Brussels expects growth of 0.5 percent and in Italy only 0.1 percent. Next year it will be in Germany again 1.4 percent, in Italy 0.7 percent.

Over the entire EU economy, the risk of external disputes and overseas political decisions hangs like a dark cloud. Dombrovskis are above all worried about the trade tensions between the USA and China, but also the US and the EU. In addition, tensions in the Middle East could push oil prices higher. And the uncertainty surrounding Brexit continues to weigh on the economy.

All this pushes the confidence of business, especially in export-dependent manufacturing. The development is alarming. According to an interim report, the world's largest chemical manufacturer BASF no longer expects earnings growth of up to ten percent, but a dramatic decline of up to 30 percent.

Weak automotive industry harbors BASF's annual targets

After a weak quarter, BASF is lowering its outlook for the full year and now expects earnings to fall. The chemical company now expects a reduction in operating profit of up to 30 percent.

Source: WELT / Dietmar Deffner

In addition to the generally slower growth in industrial production, one of the main reasons is the weak demand from the automotive industry. The unexpectedly clear warning of the chemical company against a slump on Tuesday had fueled the fear of many investors against a downturn.

Although Brussels is not dissatisfied with the state of the economy. After all, GDP will grow in 2019 for the seventh year in a row, and in all Member States, Moscovici said. In many countries, private consumption is pushing the economy, mainly thanks to a robust labor market.

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But even the French ex-Finance Minister warned of the "numerous risks" for the forecast. The EU urgently needs to work harder to make the economies and the euro area more resilient.

The European Commission also sees a slightly weaker development in inflation, partly because of the low oil price. Brussels expects inflation in the euro-zone at 1.3 (spring forecast 1.4) and in the EU as a whole at 1.5 (1.6) per cent.

According to the European Central Bank (ECB), an inflation rate of just under two percent would be better. If prices are permanently low or even declining, companies and consumers can be tempted to postpone investment. That would put an additional damper on growth.

The economic slowdown is now also having an impact on the job market

The Labor Market Barometer of the Institute for Employment Research has fallen to the lowest level in three years. One of the reasons for this is the weakening economy.

Source: WORLD / Sebastian Struwe

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