E The ECB Has Slightly Revised Down Its Economic Outlook For The Euro Zone

“Following strong growth in 2017, the economic expansion in the euro area slowed in the first half of 2018, largely on the back of a weakening in global trade. Although global uncertainties have softened the near-term outlook, the euro area expansion is projected to continue at a pace slightly above potential, reflecting the favorable impact of the very accommodative stance of monetary policy, improving labor market conditions and stronger balance sheets.” (ECB Staff Projections, September 2018)

The ECB slightly downgraded its GDP growth forecasts for 2018 and 2019 due to the weakening in global trade. While the economic outlook is still pointing in a positive direction, real GDP growth is projected to moderate from 2% in 2018 to 1.7% in 2020.

The ECB points out that the moderation in growth will be due to the gradual weakening of the stimulus from world trade and increased labor supply shortages. HICP inflation in the Euro Area is expected to average 1.7% in each year of the projection horizon.

The ECB has been gradually withdrawing from its monetary stimulus program and is still expected to end its QE program by the end of the year.

Despite growing reports of labor shortages, the Euro Area is still far from fully employed, particularly in some of its weaker countries. In July Italy’s unemployment rate was 10.4%, Spain’s was 15.1%, France’s was 9.2% and Germany’s was 3.4%. The average unemployment rate for the Zone was 8.2% in July.

As for monetary policy, ECB President Mario Draghi recently announced that will end its bond-buying program at the end of this year and that policy rates will remain unchanged at least through to next summer.