Eurozone real GDP to grow roughly 2 percent this year and in 2019

According to analysts from Wells Fargo, the Eurozone economy will grow near 2% during 2018 and they point to the trade war as a downside risk.

Key Quotes:

“Real GDP growth in the Eurozone slowed modestly in Q2, at 2.1 percent year over year. That said, the manufacturing sector and consumer spending were likely bright spots, and a tight labor market along with slowly rising incomes should support economic growth in the coming quarters. While GDP growth has remained solid, inflation in the Eurozone is still largely benign. Although headline inflation has picked up to reach the ECB’s 2 percent target in recent months, core inflation still remains steady around 1 percent and has restrained the more rapid removal of policy accommodation on the part of the ECB.

“Assuming economic growth and inflation continue to pick up, we then look for the Governing Council to begin raising rates in early autumn 2019.”

“Amid the backdrop of solid economic growth and accommodative monetary policy, trade tensions in the Eurozone heated up in Q2 as the Trump administration threatened a 25 percent tariff on auto imports from the European Union (EU). A recent Washington, D.C. summit between President Trump and European Commission President Juncker has since calmed the nerves of trade watchers as the two countries agreed to work toward removing trade barriers. However, the situation could deteriorate again if negotiations were to reach an impasse. In our view, a fullblown trade war, should one come to pass, probably would not completely derail the Eurozone economy. Exports to the United States totaled just 2.5 percent of Eurozone GDP in 2017, meaning that the effect from tariffs could be painful, but not large enough to meaningfully drag on the overall economy.”

“Although trade tensions present a downside risk to our forecast, we look for the economic expansion to remain in place, and forecast that real GDP will grow roughly 2 percent this year and in 2019. “

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