Euro consensus on uncertainty dims Euro area growth

The European Banking Federation (EBF) launched their Economic Outlook and we spent some time with our chief economist, Helge J Pedersen to learn more.

On November 26th, EBF summoned their Chief Economist Group to present their consensus Economic Outlook for the Euro Areas for 2018-2019.  Nordea chief economist Helge J. Pedersen is also the chairman for the EBF Chief Economist group and we took the opportunity to learn more on the Euro Area’s economic prospects, challenges for European banks, monetary policies, market trends and more.


EBF forecast’s 4 key points for the Euro Area


1. Economic growth

– the consensus amongst EBF chief economist is an expected GDP growth of 2.0 percent in 2018 and 1.8 in 2019.

Question: Is this 0.2 difference, an indicator that a moderate decline of economic growth and we are not to expect a sharp decline?

Helge J. Pedersen: We expect the Euro area to expand, offsetting uncertainty and tempered global demand. So yes, there is an expectation of a slight cool down. However, we also acknowledge that risks to the forecasts are tilted to the downside.

2. Inflation stabilising

– With an inflation rate of 1.8 percent in 2018 and 2019, the ECB’s medium-term objective of price stability -below, but close to 2.0 percent- is more or less achieved, the EBF Economic Outlook conclude.

Question: Does the latest inflation numbers suggest that we have can expect a steady inflation rate in the Euro Area going forward?

Helge J. Pedersen: It is safe to say that ECB is monitoring this very closely and have provided massive stimulus to boost growth and inflation in the Euro area.  The ECB’s objective of price stability -which is; below, but close to 2.0 percent, has been reached since May 2018; six months in a row with most recently 2.2 percent. With that in mind and the ECBs determination to keep inflation close to their target, we can expect inflation rates to be steady even if GDP numbers should slightly deviate. Inflation has only started to rise this year mainly driven by rising oil prices and our consensus forecast for the price of Brent oil in 2018 is around USD 73 and USD 74 in 2019 (Editor note: Brent oil currently trading around $60 per barrel).

3. Public finances have improved in the Euro Area

– the Euro area’s government budget deficit as measured as percent of GDP are estimated to 0.7 percent of GDP in 2019.

Question: We note a small deficit ratio decrease from 0.6 percent in 2018 to your projected 0.7 in 2019, how come?

Helge J. Pedersen: The deficit ratio has decreased mainly due to low interest rates and the economic upswing across the Euro area. Improved budgetary policies and economic growth translate into a lower government debt reaching a level of 83.6 percent by the end of 2019. Nonetheless, public debt remains at high levels and there is a real need to reduce public indebtedness towards more sustainable levels. Recent controversies over Italy’s draft budget are of vital importance considering possible contagion risks.

 4. Labour markets will continue to improve 

– The Euro area jobless rate is forecast to be 8.3 percent in 2018 with a further improvement to 7.9 percent in 2019.

Question: With a strong US economy having the lowest unemployment level in half a century and strong consumer confidence, the Federal Reserve is expected to continue gradually increasing interest rates. If this will have a dampening effect on imports from the Euro Area, could this negatively impact jobless rates in the Euro Area?

Helge J. Pedersen: the US economy has not been negatively affected so far by higher interest rates, so to suggest that higher interest rates would have a ripple effect on Euro area jobless rates is to be too gloomy.

Our view is that labour market conditions are expected to remain favourable over the forecast horizon driven by the economic steadiness, sustained domestic demand, moderate wage growth and structural reform promoting job creation in some Euro area countries. We also foresee that unemployment will probably continue its downtrend over the coming years, however at a somewhat slower pace.

The still existing slack in the labour markets of different Member States, together with competitive pressures and the accelerating impact of the digitalisation phenomenon, are expected to keep wage pressures contained. Our consensus view is that wages are expected to rise by 1.5 percent in 2018 and a slightly lower 1.4 percent in 2019.


Indicator 2017 2018 2019
Gross domestic product 2.4 2.0 1.8
Private consumption 1.6 1.4 1.4
Public consumption 1.2 1.2 1.2
Gross fixed investment (GFCF) 2.6 3.3 2.6
Exports 5.2 4.1 4.0
Imports 3.9 3.7 4.0
Unemployment rate 9.1 8.3 7.9
Prices (HICP) 1.5 1.8 1.8
General Government balance (% of GDP) -1.0 -0.6 -0.7
General Government debt (% of GDP) 88.9 85.5 83.6

Source: Projections for 2018 and 2019 from EBF. European Commission data for previous year.

The full EBF Economic Outlook can be downloaded on EBFs website (external link)


Helge J. Pedersen

Helge J. Pedersen, chief economist, Nordea


About Helge J. Pedersen

Chair of EBF Chief Economists’ Group Chief Economist at Nordea Denmark

Helge J. Pedersen is MSc. Econ. from Copenhagen University has more than 30 years’ experience in the financial sector and has been Group Chief Economist with Nordea since 1999. Helge has also taught Economics for many years, both at the University of Copenhagen and CBS, and has written textbooks and numerous economic articles.

He is co-author of the State of the Region Report published by Baltic Development Forum, columnist for the daily JyllandsPosten and one of the most cited Danish economist. Helge closely follows the developments in both the Danish and international economy. He is chairman of the Chief Economist Group under the European Banking Federation and member of the US based National Association of Business Economists. Helge was also a longstanding member of the Conference Board where he served as chairman for the European Economic Council 2006-08.


About Chief Economist’s Group

The Chief Economists’ Group (CEG) is engaged in macro-economic and monetary affairs, at European and international levels, in relation to the banking sector in Europe. The CEG, chaired by Mr Helge Pedersen (Nordea Bank’s Group Chief Economist), comprises high-level experts in macro-economic and monetary analysis, such as banks’ and national banking associations’ chief economists


About EBF

The European Banking Federation is the voice of the European banking sector, bringing together national banking associations from 45 countries. The EBF is committed to a thriving European economy that is underpinned by a stable, secure and inclusive financial ecosystem, and to a flourishing society where financing is available to fund the dreams of citizens, businesses

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