The macroeconomic situation remained on a path of moderate growth

The European economy remains on a path of steady and moderate growth. In 2019, the euro zone economy grew by 1.2%. This year, the European economy should increase at the same pace.

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The economic expansion in the euro area is now the longest on record since the introduction of the euro, but its pace has become more subdued. GDP growth in 2019 was 1.2% in the euro area, down from 1.9% in 2018. Economic activity is still being restrained by the high level of uncertainty linked to trade policies, as well as cyclical and structural factors. 

The resilience of economic growth has been remarkable against the background of the global manufacturing downturn, triggered by factors including global trade tensions, and the problems faced by the automobile sector. 

The latter is focused in Germany, where the problems within the car industry are continuing. In the other large euro area countries, the manufacturing sector’s gross value added has been stable, and in Central and Eastern European Member States, has shown growth.

Economic activity in the euro area has been driven by consumer spending, partially reflecting the delayed impact of government measures on household incomes. Household incomes are also continuing to benefit from ongoing improvements in the labour market. This includes continued, but slower employment growth, as well as wage increases and fiscal measures in several countries.

Investment growth remained well above GDP growth at 3.2% in 2019. While construction investment held up in the third quarter (0.8% q-o-q), nonconstruction investment fell (-0.8%). 

The recent decline in investment in equipment was in line with reduced profit margins in recent quarters, alongside a downturn in manufacturing activity, and uncertainty resulting from trade tensions. In 2020, the euro area economy is expected to hold up, with private con

sumption helping to sustain the current growth momentum. However, investment in equipment is set to remain weak, in line with subdued demand expectations at home and overseas. It may also be dampened by the decline in capacity utilization in manufacturing during 2019, which reduced some of the supply constraints that had been experienced. At this stage, it is uncertain if lower financing costs can continue to stimulate investment, after been in place for several years. 

The impact of other factors such as uncertainty over trade tensions and regulatory frameworks, and changes to crossborder supply chains, may have increased their influence. Public investment is expected to increase significantly in a number of countries, including transport and digital infrastructure developments.

In conclusion, euro area GDP is forecast to grow by 1.2% in both 2020 and 2021.