ECB staff macroeconomic projections for the euro area. March 2019.
Date: 2019-03-09
Institutions: European Central Bank
Subjects: European Central Bank, European Monetary System, European System of Central Banks, central bank, economic forecasting, euro area, macroeconomics, monetary policy, multiannual financial framework, serial publication, single monetary policy

ECB staff macroeconomic 
projections for the euro 
area 

March 2019 

 
 
 
 
 
 
 
 
 
   
Contents 

Overview 

1 

Real economy 

Box 1 Technical assumptions about interest rates, exchange rates and 

commodity prices 

Box 2 The international environment 

2 

3 

Prices and costs 

Fiscal outlook 

Box 3 Sensitivity analyses 

Box 4 Forecasts by other institutions 

2 

3 

6 

8 

12 

14 

14 

15 

ECB staff macroeconomic projections for the euro area, March 2019 

1 

Overview 

Real GDP growth remained unexpectedly sluggish in the fourth quarter of 2018, and 
recent indicators point to substantially weaker than previously expected activity also in 
the first half of 2019. While some temporary factors are likely to have contributed to the 
slowdown in activity in late 2018, the broad-based worsening of economic sentiment 
indicators across countries and sectors in recent months suggests that more 
persistent adverse factors have also been at play and that the underlying cyclical 
momentum is somewhat weaker than previously assessed. In the shorter term, a 
combination of global uncertainties (such as threats of an escalation of protectionist 
measures and the possibility of a disorderly Brexit) as well as adverse domestic 
factors in some euro area countries are likely to continue to weigh on euro area 
activity. Thereafter, the baseline assumes that these domestic and global headwinds 
gradually fade out and that the fundamental factors supporting the euro area 
expansion remain broadly in place. These factors include, notably, the very 
accommodative stance of monetary policy, rising wages, a recovery in foreign demand 
and some fiscal loosening. As these favourable factors are expected to gradually 
prevail, real GDP growth is projected to increase from 1.1% in 2019 to 1.6% in 2020 
and 1.5% in 2021. Compared with the December 2018 projections, real GDP growth 
for 2019 has been revised down by 0.6 percentage point. HICP inflation is expected to 
continue to decrease in the course of 2019 and to rise over the remainder of the 
projection horizon, reaching 1.6% in 2021. The decrease in HICP inflation in 2019 is 
accounted for by a sharp decline in HICP energy inflation, reflecting the recent drop in 
oil prices. HICP inflation excluding energy and food is projected to pick up gradually 
over the projection horizon, reflecting the continued but more moderate strengthening 
in economic activity and the tightening of labour markets. Compared with the 
December 2018 projections, HICP inflation has been revised down over the entire 
projection horizon, mainly reflecting recent weaker data outturns, the weaker outlook 
for economic growth and a downward revision to the oil price assumptions.1 

1    The cut-off date for technical assumptions, such as for oil prices and exchange rates, was 12 February 
2019 (see Box 1). The cut-off date for including other information in this exercise was 21 February 2019. 
The current macroeconomic projection exercise covers the period 2018-21. Projections over such a long 
horizon are subject to very high uncertainty, and this should be borne in mind when interpreting them. 
See the article entitled “An assessment of Eurosystem staff macroeconomic projections” in the May 2013 
issue of the ECB’s Monthly Bulletin. 

See http://www.ecb.europa.eu/pub/projections/html/index.en.html for an accessible version of the data 
underlying selected tables and charts. 

ECB staff macroeconomic projections for the euro area, March 2019 

2 

 
 
                                                                    
1 

Real economy 

Growth weakened notably in the second half of 2018 and exhibited increased 
divergence among the largest euro area countries (see Chart 1). The slowdown in 
real GDP growth, from quarterly rates of 0.4% in the first half of 2018 to 0.2% in the 
second half, is partly related to specific factors that affected activity. Among the largest 
euro area countries, this was particularly the case in Germany and Italy, which 
recorded substantial declines in GDP growth rates (from quarterly rates of 0.4% in the 
first half of 2018 to a standstill in the second half of the year in Germany, and from 
0.2% to negative rates for the same periods in Italy). In Germany, the sharp slowdown 
in the second half of 2018 was partly related to disruptions in the car industry, which 
have proved to be more persistent than previously expected, but it also reflected 
broader weakness across sectors. In Italy, uncertainty, financial market volatility and 
deterioration in business confidence had an increasingly adverse impact on economic 
activity. Quarterly GDP growth in France and Spain in the second half of 2018 slightly 
exceeded the pace seen in the first half of the year. 

Chart 1 
Euro area real GDP 

(quarter-on-quarter percentage changes, seasonally and working day-adjusted quarterly data) 

1.00

0.75

0.50

0.25

0.00

-0.25

-0.50

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Note: The ranges shown around the central projections are based on the differences between actual outcomes and previous projections 
carried out over a number of years. The width of the ranges is twice the average absolute value of these differences. The method used 
for calculating the ranges, involving a correction for exceptional events, is documented in New procedure for constructing Eurosystem 
and ECB staff projection ranges, ECB, December 2009, available on the ECB’s website. 
http://www.ecb.europa.eu/pub/pdf/other/newprocedureforprojections200912en.pdf 

With few exceptions, recent sentiment indicators have broadly worsened, 
reflecting domestic and global uncertainties, as well as an earlier than expected 
weakening of the underlying cyclical momentum. The Economic Sentiment 
Indicator (ESI) compiled by the European Commission has continued to decline in 
recent months, with its decline being broad-based across euro area countries and 
across sectors. While remaining above historical averages, the industrial, services 
and consumer confidence indices included in the ESI have fallen to levels last seen in 
late 2016. The Purchasing Managers’ Indices also continued to decline in recent 
months, as the assessment of new export orders and inventory stocks worsened. The 

ECB staff macroeconomic projections for the euro area, March 2019 

3 

 
 
 
broad-based downward surprises in economic releases may reflect a stronger than 
previously expected impact of global uncertainties – in particular related to global 
trade disputes and Brexit – as well as the impact of the aforementioned uncertainties 
in Italy and possible adverse impacts of the protests in France. They may also suggest 
that the underlying cyclical momentum has weakened earlier than previously 
expected, acknowledging the increasingly mature cyclical position of the euro area 
economy. These factors are reflected in downward revisions to real GDP growth for 
the coming quarters.   

Over the medium term, the baseline assumes a gradual dissipation of global 
and domestic headwinds, allowing fundamental factors supporting the euro 
area expansion to regain traction (see Table 1). In particular, the baseline assumes 
no disorderly exit of the United Kingdom from the European Union and that the current 
level of uncertainty regarding global trade and domestic policies in some euro area 
countries gradually normalises. The fading away of these negative headwinds will give 
way to a number of favourable fundamental factors. The ECB’s monetary policy 
stance is expected to remain very accommodative and to continue to be transmitted to 
the economy. Lending to the private sector should remain resilient, spurred by low 
interest rates and favourable bank lending conditions for both households and 
non-financial corporations. Growth in private consumption and residential investment 
should also benefit from rising wage growth and net worth, as well as from declining 
unemployment. At the same time, business investment will continue to expand against 
a background of rising profits, high capacity utilisation and likely labour-saving 
investment in the context of increasing labour shortages. Euro area exports are 
expected to benefit from the projected recovery in euro area foreign demand and by 
some competitiveness gains. Finally, the fiscal stance is expected to move from 
broadly neutral in 2018 to loosening over the full horizon (see Section 3). 

ECB staff macroeconomic projections for the euro area, March 2019 

4 

 
 
Table 1 
Macroeconomic projections for the euro area 

(annual percentage changes) 

March 2019 

December 2018 

2018 

2019 

2020 

2021 

2018 

2019 

2020 

2021 

Real GDP   

1.9 

1.1 

1.6 

1.5 

1.9 

1.7 

1.7 

1.5 

[0.7 - 1.5]1) 

[0.7 - 2.5]1) 

[0.5 - 2.5]1) 

[1.8 - 2.0]1) 

[1.1 - 2.3]1) 

[0.8 - 2.6]1) 

[0.5 - 2.5]1) 

1.3 

1.1 

1.3 

1.7 

1.6 

1.6 

1.4 

1.4 

1.4 

1.1 

1.7 

1.6 

1.6 

1.4 

1.4 

1.4 

3.3 

2.1 

2.4 

2.0 

3.5 

3.3 

2.6 

2.1 

2.8 

2.7 

1.4 

8.2 

2.8 

3.7 

0.7 

7.9 

3.6 

4.1 

0.6 

7.7 

3.2 

3.5 

0.6 

7.5 

2.8 

2.7 

1.4 

8.2 

3.5 

4.2 

0.9 

7.8 

3.8 

4.2 

0.8 

7.5 

3.4 

3.6 

0.6 

7.1 

Private consumption 

Government 
consumption 

Gross fixed capital 
formation 

Exports2) 

Imports2) 

Employment 

Unemployment rate   
(percentage of labour 
force) 

HICP   

1.7 

1.2 

1.5 

1.6 

1.8 

1.6 

1.7 

1.8 

[0.9 - 1.5]1) 

[0.8 - 2.2]1) 

[0.8 - 2.4]1) 

[1.8 - 1.8]1) 

[1.1 - 2.1]1) 

[0.9 - 2.5]1) 

[0.9 - 2.7]1) 

1.2 

1.4 

1.6 

1.6 

1.3 

1.5 

1.7 

1.8 

1.0 

1.2 

1.4 

1.6 

1.0 

1.4 

1.6 

1.8 

1.0 

1.2 

1.4 

1.6 

1.0 

1.4 

1.6 

1.8 

1.8 

2.2 

0.4 

-0.5 

1.7 

2.1 

0.4 

-1.0 

1.4 

2.4 

1.0 

-1.0 

1.6 

2.6 

0.9 

-1.1 

1.7 

2.2 

0.5 

-0.5 

1.3 

2.1 

0.8 

-0.8 

1.6 

2.5 

0.9 

-0.7 

1.8 

2.7 

0.9 

-0.6 

-0.4 

-0.8 

-1.0 

-1.2 

-0.7 

-1.0 

-1.0 

-1.0 

85.0 

83.8 

82.3 

81.1 

84.9 

83.0 

80.9 

79.0 

3.0 

2.4 

2.3 

2.2 

3.0 

2.7 

2.6 

2.5 

HICP excluding 
energy 

HICP excluding 
energy and food 

HICP excluding 
energy, food and 
changes in indirect 
taxes3) 

Unit labour costs 

Compensation per 
employee 

Labour productivity 

General government 
budget balance 
(percentage of GDP) 

Structural budget 
balance   
(percentage of GDP)4) 

General government 
gross debt   
(percentage of GDP) 

Current account 
balance   
(percentage of GDP) 

Note: Real GDP and components, unit labour costs, compensation per employee and labour productivity refer to seasonally and working 
day-adjusted data. 
1) The ranges shown around the projections are based on the differences between actual outcomes and previous projections carried out 
over a number of years. The width of the ranges is twice the average absolute value of these differences. The method used for 
calculating the ranges, involving a correction for exceptional events, is documented in New procedure for constructing Eurosystem and 
ECB staff projection ranges, ECB, December 2009, available on the ECB’s website. 
2) Including intra-euro area trade.   
3) The sub-index is based on estimates of actual impacts of indirect taxes. This may differ from Eurostat data, which assume a full and 
immediate pass-through of tax impacts to the HICP. 
4) Calculated as the government balance net of transitory effects of the economic cycle and temporary measures taken by governments. 

Nevertheless, the fading out of some tailwinds will restrain the recovery in 
economic growth over the latter half of the projection horizon. The technical 
assumptions imply that financing conditions will become gradually less favourable, 
although they will continue to support growth. In addition, following several years of 

ECB staff macroeconomic projections for the euro area, March 2019 

5 

 
 
  
  
  
   
  
  
robust growth, employment is expected to grow at a somewhat lower rate over the 
medium run, mostly reflecting increasingly binding labour supply shortages in some 
countries.   

Real disposable income is expected to maintain its solid momentum in 2019 
and 2020, before weakening in 2021. This reflects offsetting developments in 
nominal disposable income growth and consumer price inflation in 2019 and 2020, 
while both weakening nominal income growth and slightly higher inflation dampen real 
income growth in 2021. The contribution of gross wages and salaries to nominal 
disposable income growth is projected to decline somewhat in 2019 (due to the impact 
of weaker employment growth) and to remain broadly unchanged thereafter (as an 
expected increase in nominal wage growth compensates for a further slowdown in 
employment growth). Non-labour income declined in the second half of 2018 and is 
projected to recover gradually over the projection horizon, broadly in line with profits. 
The contribution of net fiscal transfers is expected to turn positive in 2019, for the first 
time since 2010, reflecting a mix of cuts to direct taxation and rising transfers to 
households; it is expected to turn broadly neutral in 2020 and 2021.   

Private consumption is projected to recover in the near term, but uncertainties 
in some countries are likely to weigh on its momentum. Private consumption has 
decelerated in the course of 2018. Looking forward, still relatively favourable 
consumer confidence, further expected improvements in labour market conditions and 
rising real wages per employee suggest stronger consumption growth over the next 
few quarters, further compounded by a positive effect of fiscal loosening in certain 
countries. At the same time, a persistent adverse impact of domestic uncertainties in 
some euro area countries is assumed to weigh on private consumption in the coming 
quarters. 

Private consumption growth should be supported in the medium term by 
favourable financing conditions and rising net worth. Bank lending rates are 
projected to increase moderately over the projection horizon. However the impact of 
rising bank lending rates on gross interest payments is expected to be limited due to 
the long maturity of household debt and the relatively low share of variable rate debt 
on the households’ balance sheet. Thus, despite the increase in lending rates, gross 
interest payments are expected to remain at low levels and therefore to continue to 
support private consumption. In addition, net worth is projected to increase by around 
2.5% in real terms each year over the period 2019-21, spurred by the continued robust 
valuation gains on real estate holdings, which explain more than half of the projected 
increase. Rising real net worth should support consumption, even though household 
gross indebtedness remains at levels prevailing before the start of the global financial 
crisis. 

Box 1 
Technical assumptions about interest rates, exchange rates and commodity prices 

Compared with the December 2018 projections, the technical assumptions include lower oil 
prices, a weaker effective exchange rate of the euro and lower interest rates. The technical 
assumptions about interest rates and commodity prices are based on market expectations, with a 

ECB staff macroeconomic projections for the euro area, March 2019 

6 

 
 
 
cut-off date of 12 February 2019. Short-term rates refer to the three-month EURIBOR, with market 
expectations derived from futures rates. The methodology gives an average level for these short-term 
interest rates of -0.3% for 2019, -0.2% for 2020 and 0.0% for 2021. The market expectations for euro 
area ten-year nominal government bond yields imply an average level of 1.0% in 2019, 1.3% in 2020 
and 1.5% in 2021. 2  Compared with the December 2018 projections, market expectations for 
short-term interest rates have been revised down by 2 basis points for 2019, 17 basis points for 2020 
and 31 basis points for 2021, while long-term interest rates have been revised down by around 40 
basis points over the full horizon.   

As regards commodity prices, on the basis of the path implied by futures markets by taking the 
average of the two-week period ending on the cut-off date of 12 February 2019, the price of a barrel of 
Brent crude oil is assumed to decrease from USD 71.1 in 2018 to USD 61.7 in 2019, and to ease 
further to USD 60.6 in 2021. This path implies that, in comparison with the December 2018 
projections, oil prices in US dollars are 8.6% lower in 2019, 8.2% lower in 2020 and 8.0% lower in 
2021. The prices of non-energy commodities in US dollars are assumed to rebound over the 
projection horizon. 3   

Bilateral exchange rates are assumed to remain unchanged over the projection horizon at the 
average levels prevailing in the two-week period ending on the cut-off date of 12 February 2019. This 
implies an average exchange rate of USD 1.14 per euro over the period 2019-21, which is broadly 
unchanged from the December 2018 projections. The effective exchange rate of the euro (against 38 
trading partners) is 0.9% weaker than entailed in the December 2018 projections. 

Technical assumptions 

Three-month EURIBOR 
(percentage per annum) 

Ten-year government bond yields 
(percentage per annum) 

March 2019 

December 2018 

2018 

2019 

2020 

2021 

2018 

2019 

2020 

2021 

-0.3 

-0.3 

-0.2 

0.0 

-0.3 

-0.3 

0.0 

0.3 

1.1 

1.0 

1.3 

1.5 

1.1 

1.4 

1.7 

1.9 

Oil price (in USD/barrel) 

71.1 

61.7 

61.3 

60.6 

71.8 

3.9 

1.2 

4.3 

4.3 

3.0 

67.5 

-1.4 

66.8 

4.4 

Non-energy commodity prices, in USD   
(annual percentage change) 

USD/EUR exchange rate 

Euro nominal effective exchange rate 
(EER38) (annual percentage change) 

1.18 

5.2 

1.14 

-0.9 

1.14 

1.14 

1.18 

1.14 

1.14 

0.0 

0.0 

5.2 

0.0 

0.0 

65.9 

4.3 

1.14 

0.0 

The expansion of residential investment is expected to continue, albeit at a 
more moderate pace. Confidence in the construction sector and rising granted 
building permits suggest a continued expansion of housing investment in the next few 
quarters. Nonetheless, the pace of this expansion is expected to slow. This weakening 
is also suggested by surveys showing a recent decline in the share of households 

2    The assumption for euro area ten-year nominal government bond yields is based on the weighted 

average of countries’ ten-year benchmark bond yields, weighted by annual GDP figures and extended by 
the forward path derived from the ECB’s euro area all-bonds ten-year par yield, with the initial 
discrepancy between the two series kept constant over the projection horizon. The spreads between 
country-specific government bond yields and the corresponding euro area average are assumed to be 
constant over the projection horizon. 

3    Oil and food commodity price assumptions are based on futures prices up to the end of the projection 
horizon. The prices of other non-energy hard commodities are assumed to follow futures until the first 
quarter of 2020 and thereafter to evolve in line with global economic activity. 

ECB staff macroeconomic projections for the euro area, March 2019 

7 

 
 
 
                                                                    
  
  
planning to undertake home improvements over the next year. Such moderation may 
emerge partly as financing conditions are set to become slightly tighter, but also as a 
result of increasingly binding capacity constraints in the construction sector and 
adverse demographic trends in some countries.   

Business investment is expected to continue recovering over the projection 
horizon, albeit at a rather subdued pace. Business investment is estimated to have 
lost some momentum in the second half of 2018. Looking ahead, business investment 
is expected to remain rather subdued in 2019, as persistent concerns about global 
trade policies, a no-deal Brexit and a hard landing in China appear to have 
increasingly adversely affected business confidence across countries. In general, 
however, a number of favourable fundamentals are expected to continue to support 
business investment in the euro area: capacity utilisation in manufacturing remains 
above its long-term average and a large share of manufacturing firms report lack of 
equipment as a factor limiting production; financing conditions are expected to remain 
supportive, albeit gradually tightening over the projection horizon; profits are expected 
to increase, which adds further to the sizeable liquid asset overhang firms have built 
up in recent years; and companies may increase investment as a means of 
compensating for labour-related supply-side constraints.   

Box 2 
The international environment 

After peaking in the second half of 2017, global growth momentum has continued to 
moderate. Economic activity in the advanced economies decelerated in the third quarter of 2018, 
slightly more than expected in the December 2018 projections due to the weaker performance of 
some non-euro area European economies and a somewhat deeper contraction in Japan. Growth in 
emerging market economies was steady, broadly in line with the December 2018 projections. 
Survey-based evidence suggests that global growth decreased in the fourth quarter of 2018 and 
weakened further in early 2019.   

Global manufacturing activity has slowed against the backdrop of the maturing business 
cycle in key advanced economies. In addition, the pace of this slowdown has been accentuated by 
growing uncertainties weighing on the global economy, such as the escalation of the trade dispute 
between the United States and China, financial stress in emerging market economies during the 
summer months and, more recently, signs of slower growth in China with knock-on effects on other 
Asian economies. The slowdown of global manufacturing activity also weighed on global trade.   

Global growth is projected to decrease slightly this year amid increasing headwinds. These 
headwinds include weaker global manufacturing activity and trade in an environment of high and 
rising policy and political uncertainty. Although the sizeable pro-cyclical fiscal stimulus in the United 
States, including lower taxes and increased public expenditures, continues to provide impetus to US 
and global growth this year, the partial Federal Government shutdown – the longest on record in the 
United States – is likely to have weighed on US activity, and the upcoming discussions on the debt 
ceiling could further erode US consumer confidence. In China, a slowdown in domestic demand is 
projected to persist in the first half of this year, as the policy support announced recently is expected 
to take some time to materialise. At the same time, lower oil prices are expected to provide support to 
growth in oil-importing countries while weighing on the activity of oil exporters.   

ECB staff macroeconomic projections for the euro area, March 2019 

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Looking further ahead, global growth is projected to pick up somewhat over the medium 
term. This reflects three key factors that shape the global growth path over the projection horizon. 
First, the cyclical momentum in advanced economies will slow as capacity constraints become 
increasingly binding and policy support gradually diminishes, amid positive output gaps and low 
unemployment rates across key advanced economies. In the United States, the boost to growth from 
the fiscal stimulus will peak in 2019 and the Federal Open Market Committee is likely to proceed with 
its gradual policy normalisation, albeit more cautiously. Second, an orderly transition to a lower 
growth path, less dependent on investment and exports, is expected to continue in China. Finally, 
growth is expected to recover in several emerging market economies that are currently going through, 
or have recently experienced, deep recessions. This applies especially, but not exclusively, to 
Argentina, Brazil and Turkey. In this regard, the projections assume that last year’s intensification of 
trade tensions between the United States and China weigh mainly on activity in these two countries. 
Overall, the pace of global expansion will settle at below pre-crisis rates and in line with potential 
global growth. Global growth (excluding the euro area) is projected to decline to 3.5% this year, from 
3.7% in 2018, and to increase slightly to 3.6% over the period 2020-21. Compared with the December 
2018 projections, the global growth projections are broadly unrevised.     

The international environment 

(annual percentage changes) 

March 2019 

December 2018 

2018 

2019 

2020 

2021 

2018 

2019 

2020 

2021 

World (excluding euro area) real GDP 

Global (excluding euro area) trade1) 

Euro area foreign demand2) 

3.7 

4.9 

4.0 

3.5 

2.4 

2.2 

3.6 

3.4 

3.3 

3.6 

3.6 

3.4 

3.8 

5.1 

4.3 

3.5 

3.5 

3.1 

3.6 

3.6 

3.5 

3.6 

3.6 

3.4 

1) Calculated as a weighted average of imports. 
2) Calculated as a weighted average of imports of euro area trading partners. 

Slowing global industrial activity, heightened trade tensions and a weaker Asian tech cycle 
are expected to weigh on global trade this year, implying a more pronounced slowdown in 
global trade than in activity. Looking further ahead, the global trade projections are anchored 
around the view that global imports will grow broadly in line with activity. Euro area foreign demand, 
which expanded by 4% in 2018, is expected to slow significantly, falling to 2.2% in 2019, before 
picking up to 3.3% and 3.4% in 2020 and 2021 respectively. Compared with the December 2018 
projection exercise, euro area foreign demand has been revised down notably in 2019 and to a lesser 
extent in 2020, largely reflecting disappointing data in late 2018 and the projected weaker import 
demand from China, the rest of emerging Asia and European economies outside the euro area. 

Extra-euro area exports are projected to grow slightly faster than foreign 
demand in the near term and in line thereafter. Following a decline in the first 
quarter of 2018, extra-euro area exports are estimated to have recovered gradually in 
the second and third quarters and to have outpaced foreign demand in the fourth 
quarter. The resulting market share gains in the fourth quarter partly reflect country 
specific factors. As these unwind, and as foreign demand remains rather sluggish in 
2019, extra-euro area export growth is expected to remain subdued in the short term, 
while still growing somewhat faster than foreign demand during 2019, implying slight 
gains in market share. The relative strength of extra-euro area exports vis-à-vis 

ECB staff macroeconomic projections for the euro area, March 2019 

9 

 
 
 
  
  
foreign demand in the short term reflects improving price competitiveness across euro 
area countries, compounded by a further normalisation of car exports. Over the 
medium term, extra-euro area exports are expected to grow in line with foreign 
demand (see Box 2). Extra-euro area imports are estimated to have slowed to below 
the pace of exports in the fourth quarter of 2018, implying a positive contribution from 
net trade to real GDP growth. Looking ahead, extra-euro area imports are expected to 
grow broadly in line with total demand (domestic demand plus exports). As imports are 
projected to rise somewhat faster than exports, the contribution of net trade to 
economic growth is projected to turn slightly negative in 2019 and to be broadly neutral 
over the remainder of the projection horizon.   

Employment growth is projected to decline given weakening activity and 
increasingly binding labour shortages in some countries. Forward-looking 
surveys suggest modest employment growth in the near term. Employment growth is 
expected to be dampened in the near term, mainly by the sharp slowdown in activity. 
Over the medium term employment growth is likely to remain subdued, as labour 
supply is expected to limit further employment growth in some countries and labour 
demand is projected to moderate in line with the slowdown in activity.   

The expansion of the labour force is expected to moderate over the projection 
horizon. The labour force is expected to continue to expand, reflecting the projected 
net positive immigration of workers, the expected integration of refugees and ongoing 
increases in the participation rate. Nevertheless, these factors are projected to fade 
over the projection horizon and the adverse impact of the ageing of the population on 
labour force growth is expected to increase, as older cohorts leave the workforce in 
higher numbers than younger cohorts enter it.   

The unemployment rate is expected to decline to 7.5% in 2021. The 
unemployment rate stood at 7.9% in the fourth quarter of 2018, which is the lowest 
level observed since the third quarter of 2008. Looking ahead, the number of 
unemployed persons is projected to decline by around 0.9 million to 12.9 million by the 
end of the projection horizon, still somewhat above the level of its pre-crisis trough. 
While the unemployment rate is expected to drop in almost all euro area countries 
over the projection horizon, individual country levels are expected to still exhibit 
substantial differences.   

Labour productivity is projected to recover over the projection horizon. 
Following its strong momentum in 2017, labour productivity per worker declined 
slightly in quarter-on-quarter terms during the course of 2018, reflecting the 
unexpected weakening of activity and some labour hoarding in response to labour 
shortages. A moderate acceleration in productivity growth in quarter-on-quarter terms 
is expected later in 2019 as activity regains momentum. Beyond that, labour 
productivity is expected to increase at a pace close to its pre-crisis average rate of 
1.0%4, supported by an increase in the number of hours worked per person and some 
gains in total factor productivity.   

4    The average between 1999 and 2007. 

ECB staff macroeconomic projections for the euro area, March 2019 

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Compared with the December 2018 projections, real GDP growth has been 
revised down substantially for 2019 and slightly for 2020. The notable downward 
revision in real GDP growth for 2019 is driven by the weaker data outturn in the fourth 
quarter of 2018 and a less favourable assessment of the short-term outlook, reflecting 
a more lasting adverse impact of specific factors in some euro area countries and 
heightened global policy uncertainties. The medium-term projection for real GDP 
growth is broadly unchanged, given the assumption that a gradual dissipation of the 
global and domestic headwinds will allow the expansion to regain traction. 

ECB staff macroeconomic projections for the euro area, March 2019 

11 

 
 
2 

Prices and costs 

HICP inflation is expected to continue to decrease until the fourth quarter of 
2019 and to pick up over the remainder of the projection horizon, reaching 1.6% 
in 2021 (see Chart 2). The decline in headline inflation in 2019 is mainly accounted for 
by a significant decrease in HICP energy inflation given the recent strong drop in oil 
prices and downward base effects related to their previous increase in 2018. In 2020 
and 2021, HICP energy prices are expected to rise at subdued rates consistent with 
the relatively flat oil price futures curve. HICP food inflation is envisaged to hover 
around rates of 1.9% over the projection horizon. HICP inflation excluding energy and 
food will be on a gradual upward path, reaching 1.6% in 2021. The pick-up in HICP 
inflation excluding energy and food is expected to be supported by the more gradual 
but continued economic recovery. Moreover, tightening labour markets will support 
wage growth, leading to higher domestic cost pressures. Rising non-energy 
commodity prices and rising underlying global prices will also bolster HICP inflation 
excluding energy and food.   

Chart 2 
Euro area HICP 

(year-on-year percentage changes) 

3.0

2.5

2.0

1.5

1.0

0.5

0.0

-0.5

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Note: The ranges shown around the central projections are based on the differences between actual outcomes and previous projections 
carried out over a number of years. The width of the ranges is twice the average absolute value of these differences. The method used 
for calculating the ranges, involving a correction for exceptional events, is documented in New procedure for constructing Eurosystem 
and ECB staff projection ranges, ECB, December 2009, available on the ECB’s website. 
http://www.ecb.europa.eu/pub/pdf/other/newprocedureforprojections200912en.pdf 

Wage growth is expected to increase somewhat further over the projection 
horizon as labour markets continue to tighten and measures that have 
dampened wage growth in some countries over the past few years expire. 
Growth in compensation per employee is projected to rise from 2.2% in 2018 to 2.6% 
in 2021. At the same time, unit labour cost growth is expected to decline somewhat 
over the projection horizon, as productivity is envisaged to strengthen. The main driver 
behind the pick-up in wage growth is the envisaged further improvement in euro area 
labour market conditions over the projection horizon, with increasing labour market 
tightness in some parts of the euro area. Beyond the cyclical momentum, the 

ECB staff macroeconomic projections for the euro area, March 2019 

12 

 
 
 
significant recent pick-up in headline inflation can be expected to contribute to a 
pick-up in wage growth in euro area countries where wage formation processes 
include backward-looking elements. In addition, the wage-dampening effects of 
crisis-related factors, such as the need for wage moderation to regain price 
competitiveness in some countries and pent-up wage restraint in view of binding 
downward rigidities in nominal wages during the crisis, should gradually abate as the 
economic expansion continues. Some countries have also introduced increases in 
minimum wages, which might pass through to the wage distribution.   

Profit margins are expected to develop more favourably over the projection 
horizon than in 2018. Profit margins have been squeezed over the last few quarters 
on account of a surge in unit labour costs, reflecting the weakening in economic 
activity that has led to a drop in productivity growth. In addition, deteriorations in the 
terms of trade, related to the past increases in oil prices, weighed on profit margin 
developments. Both factors should lose importance over the next few quarters as the 
paces of economic activity and productivity pick up, while the terms of trade are 
expected to improve given the recent fall in oil prices.   

External price pressures are expected to recede in 2019 and to rise moderately 
over the remainder of the projection horizon. The annual growth rate of the import 
deflator is envisaged to decrease in 2019, compared with 2018, and to rise gradually 
thereafter. This profile is strongly determined by the movements in oil prices, which 
pushed up import prices in 2018 and are expected to dampen their developments in 
2019. At the same time, non-oil commodity prices and underlying global price 
pressures are assumed to rise and contribute to the gradual increase in import prices. 

Compared with the December 2018 projections, the projection for HICP inflation 
has been revised down for the whole projection horizon. The downward revision 
in HICP inflation mainly reflects the assumption of significantly lower oil prices 
(particularly in 2019 and 2020) and a lower path for HICP inflation excluding energy 
and food. In turn, the downward revision in HICP inflation excluding energy and food 
reflects the impact of lower oil prices via indirect effects, weaker recent data outturns, 
a more moderate outlook for economic activity and some limited reassessment of the 
strength of the pass-through of wages to prices.   

ECB staff macroeconomic projections for the euro area, March 2019 

13 

 
 
3 

Fiscal outlook 

The euro area fiscal stance is assessed to have been broadly neutral in 2018 
and is projected to loosen from 2019 onwards. The fiscal policy stance is 
measured as the change in the cyclically adjusted primary balance net of government 
support to the financial sector. In 2019, the main contribution to the looser fiscal stance 
stems from cuts to direct taxes and social security contributions, as well as higher 
government expenditure in some countries. For 2020, further loosening is projected. 
The main contributions to this stem from further cuts to direct taxes and social security 
contributions, still rather strong expenditure growth and higher transfers. For 2021, the 
baseline incorporates some loosening that is mostly related to expenditure growth in 
some countries. 

The euro area budget balance is projected to deteriorate in 2019 and to remain 
broadly unchanged for the rest of the projection horizon, while the debt ratio 
remains on a downward path. The widening in the government deficit is due to a 
deterioration in the cyclically adjusted primary balance. This is partly offset by a slight 
decline in interest expenditures, resulting from the replacement of high-cost old debt 
with new debt issued at lower interest rates. The declining path of the government 
debt-to-GDP ratio is supported by positive primary balances and a favourable 
interest-growth rate differential.   

The euro area deficit outlook has deteriorated significantly compared with the 
December 2018 projections, in particular for 2020 and 2021. The higher budget 
deficit is due to a less favourable primary balance and a lower cyclical component, 
reflecting the weaker macroeconomic outlook. The debt-to-GDP ratio is projected to 
be higher, mainly reflecting an increasing interest-growth rate differential in 2019, 
owing to the downward revision of GDP growth, and lower primary balances. 

Box 3 
Sensitivity analyses 

Projections rely heavily on technical assumptions regarding the evolution of certain key 
variables. Given that some of these variables can have a large impact on the projections for the euro 
area, examining the sensitivity of the latter with respect to alternative paths of these underlying 
assumptions can help in the analysis of risks around the projections. This box discusses the 
uncertainty around some key underlying assumptions and the sensitivity of the projections with 
respect to these variables.   

1) Alternative oil price paths 

This sensitivity analysis aims to assess the implications of alternative oil price paths. The 
technical assumptions for oil price developments underlying the baseline projections, based on oil 
futures markets, predict a rather flat profile for oil prices, with the price of a barrel of Brent crude oil at 
USD 60.6 in 2021. Two alternative oil price paths are analysed. The first is based on the lower 25th 
percentile of the distribution provided by the option-implied densities for the oil price on 12 February 

ECB staff macroeconomic projections for the euro area, March 2019 

14 

 
 
 
2019. This path implies a gradual decline in the oil price to USD 46.0 per barrel in 2021, which is 
24.1% below the baseline assumption for that year. Using the average of the results from a number of 
staff macroeconomic models, this path would have a small upward impact on real GDP growth 
(around 0.1 percentage point in 2020 and 2021), while HICP inflation would be 0.2 percentage point 
lower in 2019, 0.5 percentage point lower in 2020 and 0.3 percentage point lower in 2021. The 
second path is based on the upper 25th percentile of the same distribution and implies an increase in 
the oil price to USD 77.8 per barrel in 2021, which is 28.3% above the baseline assumption for that 
year. This path would entail a faster increase in HICP inflation, which would be 0.4 percentage point 
higher in 2019, 0.5 percentage point higher in 2020 and 0.2 percentage point higher in 2021, while 
real GDP growth would be slightly lower (down by 0.1 percentage point in each year of the projection 
horizon). 

2) An alternative exchange rate path 

This sensitivity analysis investigates the effects of a strengthening of the exchange rate of 
the euro. This scenario is consistent with the distribution of the option-implied risk-neutral densities 
for the USD/EUR exchange rate on 12 February 2019, which is heavily skewed towards an 
appreciation of the euro. The 75th percentile of that distribution implies an appreciation of the euro 
vis-à-vis the US dollar to an exchange rate of USD 1.31 per euro in 2021, which is 15% above the 
baseline assumption for that year. The corresponding assumption for the nominal effective exchange 
rate of the euro reflects historical regularities, whereby changes in the USD/EUR exchange rate 
correspond to changes in the effective exchange rate with an elasticity of just above one half. In this 
scenario, the average of the results from a number of staff macroeconomic models points to real GDP 
growth being 0.1 percentage point lower in 2019, 0.6 percentage point lower in 2020 and 0.3 
percentage point lower in 2021. HICP inflation would be 0.1 percentage point lower in 2019, 0.6 
percentage point lower in 2020 and 0.4 percentage point lower in 2021.   

Box 4 
Forecasts by other institutions 

A number of forecasts for the euro area are available from both international organisations 
and private sector institutions. However, these forecasts are not strictly comparable with one 
another or with the ECB/Eurosystem staff macroeconomic projections, as they were finalised at 
different points in time. Additionally, they use different (partly unspecified) methods to derive 
assumptions for fiscal, financial and external variables, including oil and other commodity prices. 
Finally, there are differences in working day adjustment methods across different forecasts (see the 
table).   

As indicated in the table, most of other institutions’ currently available projections for real 
GDP growth and HICP inflation are within the ranges surrounding the ECB staff projections 
(shown in square brackets in the table). 

ECB staff macroeconomic projections for the euro area, March 2019 

15 

 
 
 
 
Comparison of recent forecasts for euro area real GDP growth and HICP inflation 

(annual percentage changes) 

Date of release 

2018 

2019 

2020 

2021 

2018 

2019 

2020 

2021 

GDP growth 

HICP inflation 

Eurosystem projections 

March 2019 

1.9 

1.1 

1.6 

1.5 

1.7 

1.2 

1.5 

1.6 

[0.7 - 1.5] 

[0.7 - 2.5] 

[0.5 - 2.5] 

[0.9 - 1.5] 

[0.8 - 2.2] 

[0.8 - 2.4] 

OECD 

March 2019 

1.8 

Euro Zone Barometer 

January / February 2019 

1.8 

Consensus Economics   

January / February 2019 

European Commission 

February 2019 

Survey of Professional 
Forecasters 

January 2019 

1.8 

1.9 

- 

1.0 

1.3 

1.3 

1.3 

1.5 

1.2 

1.4 

1.4 

1.6 

1.5 

- 

1.4 

1.2 

- 

1.4 

IMF 

January 2019 

1.8 

1.6 

1.7 

- 

- 

1.7 

1.7 

1.7 

- 

- 

- 

1.4 

1.4 

1.4 

1.5 

- 

1.5 

1.5 

1.5 

1.6 

- 

1.7 

1.7 

- 

1.7 

- 

- 

- 

Sources: OECD Interim Economic Outlook, March 2019; MJEconomics for the Euro Zone Barometer, February 2019 survey for 2018, 2019, 2020 and January 
2019 survey for 2021; Consensus Economics Forecasts, February 2019 survey for 2018, 2019, 2020 and February 2019 survey on Trends in productivity and 
wages for 2021 (GDP) and January 2019 survey for 2021 (HICP); European Commission Economic Forecast, Winter 2019 (Interim) European Economic 
Forecast; ECB’s Survey of Professional Forecasters, 2019Q1; IMF World Economic Outlook, WEO update of January 2019. 
Notes: The Eurosystem and ECB staff macroeconomic projections and the OECD forecasts both report working day-adjusted annual growth rates, whereas the 
European Commission and the IMF report annual growth rates that are not adjusted for the number of working days per annum. Other forecasts do not specify 
whether they report working day-adjusted or non-working day-adjusted data. 

ECB staff macroeconomic projections for the euro area, March 2019 

16 

 
 
 
 
  
  
  
 
 
 
 
© European Central Bank, 2019 

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