Will faltering EU growth play a role in the European elections?

Will faltering EU growth play a role in the European elections?

Economic growth is still weak and unevenly spread across the 28-nation European Union, while job creation is only just beginning to improve. Will Europe's lackluster economy have an impact on the upcoming elections?

Ahead of elections for the European Parliament this week, Europeans have much to worry about. There's a persistent threat by US President Donald Trump to impose punitive tariffs on EU countries, the ongoing trade dispute between Washington and Beijing, and a series of uncertainties accompanying Britain's exit from the 28-nation bloc.

Moreover, the EU's sovereign debt crisis of 2012 is still casting a long shadow, notably over the 19 states that share the euro. The cocktail of economic woes has held the EU economy down for the past six months, with the bloc's strongest economy, Germany, just avoiding slipping into recession.

With just a few days to go until the elections, the European statistics office, Eurostat, is seeing at least a haze of a silver lining in all the clouds, reporting an acceleration of economic activity. Growth in the first three months of the year came in at 0.5% for the EU, and 0.4% for Germany.

Slowdown still expected for 2019

German Economy Minister Peter Altmaier has warned, however, that the improvement over the previous quarter is "no reason not to be alarmed" about the economy. The European Commission shares his view. The EU's executive wing released data earlier this month projecting weakening growth over the course of the year.

Similarly, the International Monetary Fund (IMF) and other global economic organizations have forecast a slowdown in Europe amid an expected cooling of the global economy. They argue that the European economy cannot shine when clouds are gathering all around the world. The Commission said, for example, that in the EU, and notably in the eurozone, the slowdown was even more pronounced because the region was "highly dependent on external demand."

Furthermore, sentiment is also being hit by a number of sector- and country-specific factors, the report said. "These include disruptions in the car manufacturing sector, social tensions, policy uncertainty, as well as uncertainty related to Brexit."

Small wonder that growth projections have been cut for almost all big economies across Europe. Germany's export-dependent economy with its large automobile industry is expected to grow only by 0.5% in 2019. Italy is also seen lower at a mere 0.1% due to its government's perceived erratic policies.

France — Europe's second-largest economy — is thought to be faring comparatively better, with projected growth of 1.3%, despite its "yellow vests" protests.

Poland and Hungary of all

Surprisingly, Poland is seen outpacing all other EU economies with 4.2% growth projected. And this, ironically, against the backdrop of EU disciplinary measures imposed against Warsaw over alleged violations of the bloc's basic democratic principles.

Hungary — whose Prime Minister Victor Orban is also under EU pressure for similar reasons — is also expected to outgrow most EU countries with 3.7%, giving a strong economic tailwind to the populists' European election campaign. 

The Commission hopes robust domestic consumption on the back of rising wages and employment will aid the EU's economic prospects. Poland, Hungary and other eastern European states will also continue to benefit from subsidies from Brussels.

However, while Germany, the Netherlands, Poland and Hungary, will all profit from their strong labor markets, job creation in the EU's southern periphery, notably in Greece, Italy and Spain, will remain precarious. Nevertheless, unemployment will continue to fall, to 7.7% in the euro area and 6.5% in the EU as a whole, including Britain.

Brussels hopes this downward trend will last into 2020, driving eurozone unemployment down to 7.3%, meaning it could fall "below its precrisis level."

Risks remaining after elections

The EU's executive wing, however, isn't turning complacent despite some minor improvements lately. In its recent report, it made abundantly clear that trade disputes, higher tariffs, slower global growth, and even a return of banking sector problems and debt woes are risks that won't go away.

Those downside risks could be made worse by more political uncertainty resulting from the European Parliament elections, the Commission said. "Unsustainable policies… could result in a pullback in private investment," it warned.

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