Following a strong showing in early 2011, the economies across Europe now face the prospect of a pronounced slowdown, as global growth has softened, risk aversion has risen, and strains in Europe's sovereign debt and financial markets have deepened, according to this issue of the Regional Economic Outlook for Europe. Downside risks are significant, and a further deepening of the euro area crisis would affect not only advanced Europe, but also emerging Europe, given its tight economic and financial ties. The policy stance in advanced Europe will need to be adapted to reflect the weakening and tense outlook, financial systems strengthened further, and a consistent, cohesive and cooperative approach to monetary union adopted by all euro area stakeholders. The cross-country experience in the past decade in Europe shows the difference that good policies can make in boosting growth, with some European countries having grown rapidly while others have stagnated. Escaping low-growth traps, through broad-based reforms that address macroeconomic imbalances and country-specific structural rigidities, is possible.
Economic activity continued to expand
in the first half of 2018, albeit at a slower-than-expected pace, mainly in
advanced Europe. Domestic demand, supported by stronger employment and wages,
remains the main engine of growth. However, the external environment has become
less supportive and is expected to soften further in 2019 owing to slowing
global demand, trade tensions, and higher energy prices. Tighter financial
conditions in vulnerable emerging market economies and maturing business cycles
are also weighing on activity. Accordingly, growth is projected to moderate
from 2.8 percent in 2017 to 2.3 percent in 2018 and 1.9 percent in 2019. That
said, it is expected to remain above potential in most countries in the region.