Weak Industry Causes a Slight Dip in Eurozone Economy (June 2019)
The eurozone economy will experience a slight dip in the second quarter of the year. Growth is expected to fall to 0.3 percent, from 0.4 percent in the first quarter, according to three research institutes: ifo in Munich, KOF in Zurich, and Istat in Rome. They expect growth in each of the third and fourth quarters to return to 0.4 percent.
The reason for the temporary weakness in the second quarter is industrial production, where the institutes forecast a decline of 0.3 percent after a surprisingly strong increase of 0.9 percent in the first quarter. For each of the third and fourth quarters, they expect industrial production to grow again by 0.3 percent.
Investments are expected to increase by 0.3 percent in the second quarter and by 0.5 percent in each of the third and fourth quarters. The economy will also be driven by private consumption, which will grow by 0.3 percent, 0.4 percent, and 0.4 percent respectively in the three quarters.
For 2019 as a whole, this means GDP growth of 1.3 percent, investment growth of 3.5 percent, and private consumption growth of 1.4 percent. Quarterly inflation is likely to be 1.4 percent, 1.1 percent, and 1.3 percent, with inflation for the year as a whole of 1.3 percent – well below the European Central Bank’s target of 2.0 percent. The forecast is based on an assumed oil price for Brent crude of USD 63 per barrel and an assumed exchange rate of EUR 1 = USD 1.12.
The forecast is subject to considerable risks in the autumn. On the one hand, the new date for Brexit will be fast approaching. The US will also be deciding on the imposition of additional duties on car imports from the EU and Japan. Such duties could have a significant negative impact on production in the euro area.
