Slow economic growth expected to continue in the EU

Looking to the future, the EU’s Winter Forecast suggests that the “external environment remains challenging” but that “continued employment creation, robust wage growth, and a supportive policy mix should help the European economy maintain a path of moderate growth”. In a positive note for the timber sector, the Forecast also suggested that “private consumption and investment, particularly in the construction sector, will continue to fuel economic growth”.

It was also noted that “the European economy could benefit from more expansionary and growth-friendly fiscal policies and enjoy positive spillovers from more benign financing conditions in some euro area Member States”. However, the Forecast also suggests that “overall the balance of risks continues to remain tilted to the downside. The ‘Phase One’ trade deal between the US and China has helped to reduce downside risks to some extent, but the high degree of uncertainty surrounding US trade policy remains a barrier to a more widespread recovery in business sentiment.”

The outbreak of the ‘2019-nCoV’ coronavirus, with its implications for public health, economic activity and trade, especially in China, is identified in the Forecast as a new downside risk. “The baseline assumption is that the outbreak peaks in the first quarter, with relatively limited global spillovers. The longer it lasts, however, the higher the likelihood of knock-on effects on economic sentiment and global financing conditions”.

On Brexit, the Forecast notes that “While there is now clarity on trading relations between the EU and the United Kingdom during the transition period, there remains considerable uncertainty over the future partnership with the UK”.

As a forward-looking report, the EU Winter 2020 Forecast excludes the UK which ceased to be an EU member on 31st January 2020 (although the UK is still subject to EU regulations until the end of the transition period on 31st December 2020).

For data on the UK, it is now necessary to look to the UK Office of National Statistics (ONS), which reports that the UK economy saw no growth in the final three months of 2019, as manufacturing contracted for the third quarter in a row and the service sector slowed around the time of the election. The ONS figures showed the UK economy grew by 1.4% in 2019, marginally higher than the 1.3% rate in 2018.

More positively, ONS data shows that the UK economy expanded 0.3% in December compared with the previous month, better than expectations. This, combined with recent sentiment indicators, suggests the UK economy has picked up since the general election on 12th December.

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