Euro Area Central Bank Statement

Author: IFLR Correspondent | Published: 24 Sep 2019
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Despite the escalating trade dispute between the United States and China, the global economy continues to grow robustly, albeit at a slower pace. […]

The incoming data for the euro area in the first quarter of 2019 have been somewhat better than expected. Euro area real GDP increased by 0.4% quarter on quarter in the first quarter of 2019, bolstered by resilient domestic demand.

However, survey information and economic indicators point to somewhat weaker growth in the second and third quarters of this year. This reflects the ongoing weakness in global trade and the prolonged presence of uncertainties that continue to weigh on euro area growth, in particular in the manufacturing sector.

Consequently, the Eurosystem staff projections see euro area real GDP growth of 1.2 % in 2019, which will accelerate further, to 1.4 %, in both 2020 and 2021. Compared with the March 2019 staff projections, the outlook for real GDP growth has been revised up slightly for 2019, largely owing to a stronger than expected first quarter. At the same time, real GDP growth has been revised down for 2020 and 2021, mainly reflecting a somewhat weaker contribution of foreign demand.

The fundamental factors supporting the euro area expansion remain broadly in place. Labour market dynamics remain robust, with unemployment at 7.6% in April, the lowest level since August 2008. Employment increased by 0.3% quarter on quarter in Q1 2019, as in the previous quarter. The cumulative increase in the number of people employed between Q2 2013, the trough of euro area employment, and Q1 2019 amounts to 10.8 million.

Nevertheless, the risks surrounding euro area growth are tilted to the downside, on account of the prolonged presence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets.

Turning to inflation, headline inflation was 1.2% in June, according to Eurostat's flash estimate, unchanged from May, which conceals lower energy prices and a recovery in services inflation, while measures of underlying inflation remained very subdued. On the basis of current futures prices for oil, headline inflation is likely to decline over the coming months before rebounding towards the end of the year. Oil prices (as measured by the USD price of Brent crude oil) have risen by more than 20% since the start of the year.

This scenario is broadly in line with the latest Eurosystem staff projections, which foresee annual headline inflation of 1.3% in 2019, rising gradually to 1.4% in 2020 and 1.6% in 2021, broadly confirming the March outlook.

At the same time, labour cost pressures have strengthened and broadened. In Germany, for example, wages rose in the first quarter of 2019 by 2.5% in nominal terms, and by 1.2% in real terms. This is due to high levels of capacity utilisation and tightening labour markets, which is translating into a pick-up in wage growth.

Summing up, although the incoming data for the first quarter of 2019 have been somewhat better than expected, weak global trade and the prolonged presence of uncertainties continue to act as a drag on euro area growth.

Excerpt from the 'Economic and monetary policy at a turning point – where is the economy heading in Europe, the United States and China?' speech by Yves Mersch at the Petersberger Sommerdialog, Königswinter, June 29 2019. The full speech is available at: