UK growth trails eurozone amid ‘uncertainty and numerous, interconnected risks’

Figures released as part of the autumn 2018 European Economic Forecast reveal that UK growth is expected to fall from 1.3% in 2018 to 1.2% in 2019 and 2020.

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Meanwhile, the average EU27 nation – the remaining EU member states after UK exits the bloc – have seen growth on average of 2.2% this year, with the EC forecasting this will slow to 2% and 1.9% in 2019 and 2020 respectively.

The fastest growth of the EU27 is expected from Ireland and Malta, with the former witnessing GDP growth of 7.8% this year, slowing to 4.5% and 3.8% in the following two years. Meanwhile, Malta has seen 2018 GDP growth of 5.4%, which is expected to fall to 4.9% and 4.4% in 2019 and 2020 respectively.

Outside of the UK, Italy, which has grown by just 1% in a 2018 rife with political turmoil, is expected to see growth of 1.2% and 1.3% in the following two years.

Director general for economic and financial affairs Marco Buti said the EC expects GDP in the euro area to “decelerate in line with a further slowing momentum of foreign trade as the global economy has entered more choppy waters”.

On a domestic level Buti said a pick-up in inflation – which the EC expects to grow to 2% in the UK and EU27, and 3.5% globally in 2019 – will “weigh on household real income growth even though wages are finally increasing more visibly”.

He also identified labour supply shortages in EU member states as making it more difficult to maintain the “current pace of job creation over the coming years”.

This is exacerbated, Buti explained, by issues such as trade tensions and high corporate leverage combined with tighter Fed monetary policy, while a no-deal Brexit would “entail abrupt changes in trade relations…and harm the economies on both sides of the Channel”.

He said: “Further downside risks are growing and interconnected; they could lead to a significantly worse outcome than projected”.

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Elsewhere, Buti said there are “many financial assets look vulnerable to a reversal of investor risk perceptions”.

He added: “A general and sharp retreat from risky assets would be detrimental to highly-indebted firms in advanced and emerging market economies and cause broader spillovers”.

Policy change required

Buti said that there is added risk that these risks could “reinforce one another” and “policy action” is required on three fronts.

Firstly, global-level action I required to “improve the rules-based multilateral order that has underpinned world trade so far and that has, in particular through the G20, contributed to strengthening international financial and macroeconomic stability”, Buti said.

 

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