Although European investors generally welcomed the results of the European Parliamentary elections, share prices across the region generally fell heavily amid concerns over Europe’s economic outlook and the future path of Brexit, and wider speculation over the impact of the intensifying trade conflict between the US and China.
- Every EU member state is expected to post positive economic growth in 2019 and 2020
- However, growth will be “at a slower pace:”
- Italy is expected to contravene the EU’s Stability & Growth Pact
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Although European investors generally welcomed the results of the European Parliamentary elections, share prices across the region generally fell heavily amid concerns over Europe’s economic outlook and the future path of Brexit, and wider speculation over the impact of the intensifying trade conflict between the US and China. Pro-EU parties performed relatively well in the European Parliamentary elections, although nationalist parties in some countries – notably France, Italy and Germany – enjoyed an upsurge in popularity.
“The European Commission downgraded its prediction for economic expansion in the eurozone”
In its Spring Economic Forecast, the European Commission (EC) downgraded its prediction for economic expansion in the eurozone. The EC now expects the euro area to expand by 1.2% in 2019 – compared with growth of 1.9% in 2018 – before improved to 1.5% in 2020, once trade and policy-related uncertainties have lessened.
Presenting the Forecast, Pierre Moscovici reiterated that the economy of every EU member state is expected to continue to grow this year and next year, “albeit at a slower pace”. During 2019, growth is predicted to be above the EU average of 1.4% in Poland (4.2%), Spain (2.1%) and the Netherlands (1.6%). In comparison, economic growth in Germany is expected to be “particularly subdued” at 0.5%, compared with the EC’s previous forecast of 1.1%.
While deficit-to-GDP ratios are forecast to continue falling in the region, Italy’s deficit-to-GDP is expected to rise to 2.5% in 2019 and 3.5% in 2020 – contravening the EU’s Stability and Growth Pact (SGP), which has a threshold of 3%. During May, the FTSE MIB Index dropped by 9.5%.
In Greece, investors welcomed Prime Minister Alexis Tsipras’s decision to call a snap general election, which raised speculation that a more business-friendly Government might take office. The election will be held on 7 July. The Athens Composite Index rose strongly over the month as a whole, climbing by 7.4%.
Germany’s economy grew at an annualised rate of 0.6 % during the first three months of 2019. Although exports rose by 1.5%, their growth was outstripped by imports, which increased by 4.1%. The country’s economy still “lacks momentum” according to Ifo Institute’s business climate indicator. Meanwhile, a survey by GfK found that consumer sentiment in Germany had deteriorated as improving expectations for income failed to offset a weaker outlook for the economy and for household spending. The Dax Index fell by 5% during May.
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