As Minister for Finance, I attend the Economic and Financial Affairs Council of the European Union (ECOFIN) which is responsible for EU policy in a number of areas including economic policy. I also attend meetings of the Eurogroup, where the Ministers of the Euro Area Member States discuss matters concerning their shared responsibilities related to the euro.
At both the ECOFIN and Eurogroup meetings, Ministers work alongside the European Commission and the European Central Bank (ECB) to take stock of the latest economic situation, including the risks to the European economy’s growth prospects.
I regularly monitor the latest economic developments. My Department continually analyses and prepares briefing on short and medium-term macroeconomic trends in European and international economy. This includes informing me of the latest forecasts of the global economy and of our key trading partners from the international institutions.
The Commission published its Autumn Economic Forecast on Thursday 7th November. The forecast indicated that the European and the Euro Area economies have weakened over the past year, reflecting a considerable slowdown in external demand and contraction in the manufacturing sector. While the Euro Area is now in its seventh consecutive year of growth, with growth expected to continue in all Member States, this is at a considerably slower rate than earlier in the decade. European labour markets have remained strong and the unemployment rate has fallen to below its pre-crisis level, fuelling robust wage growth, allowing domestic demand to expand at a relatively steady pace. The labour market is expected to maintain this performance albeit at a slower pace reflecting the broader economy.
The European economy is expected to enter a protracted period of subdued growth and low inflation. The Commission is forecasting Euro Area GDP to expand by 1.1 per cent in 2019 and by 1.2 per cent in 2020 and 2021. The GDP forecast for the EU28 is for growth of 1.4 per cent in 2019 and 2020. This represents a significant slowdown from the growth rates seen in 2015-2017. The performance of individual Member States is diverging with some areas (e.g. Central and Eastern Europe, Malta, and Ireland) expanding faster than others (e.g. Italy, Germany).
The Commission also identified a number of risks to future growth in its forecast, including; a less supportive external environment, persisting tension in the international trade environment, a slowdown in Euro Area manufacturing, and uncertainty related to Brexit.
Member states promote stability and growth in their respective economies during the European Semester Cycle. The purpose of the cycle, commencing in November, is to provide a framework for coordination of economic policies and guidelines, delivered in the context of the Stability and Growth Pact (SGP) and Macroeconomic Imbalance Procedure. In Spring/Summer the Commission makes country specific recommendations based on EU member state plans for macroeconomic, budgetary, and structural reforms. The recommendations are designed to put in place, and maintain, the necessary conditions for stability, growth, and jobs in all EU partners.
The Commission Forecasts note that monetary policy conditions are expected to remain supportive and that the Euro Area fiscal stance is set to remain broadly neutral.
In trade terms, almost half of all the trade in goods undertaken by Euro Area countries is with other Euro Area countries, and thus is not subject to currency risk. The nominal values of other key trading partner currencies (as the Euro) are determined by market forces. The Commission forecasts are based on a standard technical assumption of unchanged interest and exchange rates from a given cut-off date. However, the variability of the international environment, including exchange rate developments, underlines the importance of continued competitiveness improvements including by focussing on costs we can control and by boosting our productivity. Ensuring a sustainable path for the public finances is also of fundamental importance.
The adoption of tailored country-specific structural and fiscal reforms will help to boost future growth, increase resilience, and improve future living standards within the Euro Area.