Euro area economy slows further

The euro area economy has once again switched back a gear. The slowdown over the course of 2018 is mainly due to weaker impulses from the international environment and, to a lesser extent, to country-specific temporary factors. Despite a significant deterioration in confidence levels – particularly in the industrial sector – GDP is expected to grow moderately, as temporary factors fade, interest rates remain low and fiscal policy will be supportive. Foreign trade is expected to contribute to the expansion over the forecast horizon, unless global trade conflicts escalate or the UK leaves the European single market in a disruptive way. Gross domestic product is expected to grow by 1.2 percent in 2019 and 1.5 percent in 2020. Despite the recent slowdown, unemployment is expected to decline to a new historical low in 2020. Consumer prices will increase only moderately at 1.3 percent in the current year and 1.5 percent in 2020. A first interest rate hike by the European Central Bank is not expected before mid-2020.