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
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
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: www.ecb.europa.eu