Transcript of the October 2019 European Department Annual Meetings Press Briefing
October 18, 2019
Poul Thomsen, Director, European Department
Andreas Adriano, Senior Press Officer, Communications Department
MR. THOMSEN: Good morning to all of you. And thank you for coming to listen to me this morning. I'll make a brief introduction, and then as usual take your questions.
Since we met at the time of the Spring Meetings economic growth has slowed further. We see a slowdown across Europe, but in particular in advanced Europe, and within that group, in particular in Germany and Italy, two countries with very large manufacturing sectors and export sectors. The U.K. has also underperformed due to Brexit-related uncertainties. In this context, we have lowered our forecast for 2019, marginally, not significantly, for advanced Europe from 1.4 to 1.3 percent. Emerging Europe has also seen a slowdown, but is actually significantly less than we had expected, the slowdown in emerging Europe, and here we have therefore had to revise our forecast up a bit to 3.7 percent. So still relatively robust growth in emerging Europe.
Now what is driving that slowdown? It is still caused by external trade, reflecting continued trade tension and other factors, like Brexit. That said, there are signs of some incipient spillovers to domestic demand, notably to investment via confidence channels. On the other hand, domestic demand is still relatively robust reflecting still very strong labor markets; in many markets we have unemployment at or below pre-crisis level, and we still have relatively robust increases in wages. And credit growth remains strong on the back of the support of financial conditions.
So, on the basis of this somewhat mixed picture, how do we see the outlook for 2020? For advanced Europe, we expect a modest recovery in growth, modest, to 1.5 percent. For emerging markets, for emerging Europe we do have a slight slowdown to 3.1 percent, still respectable, that reflects really the assumption of a lax (phonetic) spillover from the slowdown in advanced Europe, and the fact that these countries have been growing quite strongly above potential, so there's a sort of a convergence towards potential.
Why are we projecting an upturn in emerging Europe? This reflects primarily, the IMF's global assumption of a recovery in global demand which obviously translate into a rebound in European export. In addition, as I said, labor markets are still strong, and we expect this to continue to underpin domestic demand, that together with the macroeconomic policies that continue to be supportive, not least monetary policy.
That's the explanation for our assumption of modest recovery in advanced Europe. Now, clearly, there are some risks to this forecast. The projected recovery is predicated on the assumption that we avoid a cliff-edge Brexit, and that there will be no further escalation of trade tension.
