Although the period of economic expansion is continuing, the outlook for global growth has become somewhat bleaker. Global GDP growth stood at 3.7 per cent in 2018 and was therefore just under the growth rate of the previous year (2017: 3.8 per cent). Although the prospects for growth have deteriorated somewhat compared with the previous year, they still remain positive. Economists forecast annual global growth of 3.5 per cent for both 2019 and 2020. Political risks are the main reason for the worsening situation. Protectionist tendencies in global trade, particularly between the United States and China, as well as increasing uncertainty regarding the future relationship between the United Kingdom and the European Union are putting a strain on the global business climate.
Growth has slowed in the eurozone, yet the foundations for continued economic expansion remain intact. Following the strong economic momentum in 2017 (average quarterly growth of 0.7 per cent), growth in GDP fell to 0.4 per cent in the first half of 2018 before falling to 0.2 per cent in the second half of the year. The economy is predominantly being slowed by weaker external demand, while demand in Austria from private consumers and investors is having a stabilising effect. Consumption by private households is expected to continue supporting the economy through positive developments on the labour market, with the unemployment rate falling to 7.9 per cent in December 2018.
Austria recorded very robust performance in 2018 with economic growth of 2.7 per cent. However, a slight slowdown in the economy is also looming in Austria as compared with the eurozone as a whole. Economists expect growth in GDP of 1.6 per cent for the current year 2019. The recovery of the Austrian labour market has so far continued unabated, with the unemployment rate falling to 4.7 per cent in December 2018 (2017: 5.5 per cent).
In the USA, economic development accelerated once again. Following growth of 2.2 per cent in 2017, the US economy is projected to have expanded by 2.9 per cent in 2018. Growth in GDP will fall gradually in 2019 and the following year and is expected to reach a long-term sustainable level in 2020. The positive momentum for growth from the tax reforms, which at least supported domestic demand in the short term, and the looser monetary policy will increasingly decline. The US Federal Reserve continued its cycle of interest rate hikes with four increases in 2018. The bandwidth for US key interest rates increased in December 2018 to between 2.25 and 2.50 per cent. The Federal Reserve has signalled a wait and see approach regarding any further interest rate rises for 2019, emphasising the importance of the economic developments that have taken place and those still expected for the time and scope of any future changes to monetary policy. There was a return to normality in monetary policy in the eurozone in 2018. The ECB’s quantitative easing programme expired as of the end of the year. However, the redemptions from maturing bonds will be reinvested until further notice – in any case until after any initial interest rate rise at least – meaning that monetary policy will continue to support the economy. The ECB has announced the prospect of starting a cycle of interest rate hikes for the period following summer 2019. However, the return to normal monetary policy would be delayed in the event of a further deterioration in economic performance. Any return to normal interest rates will therefore be a slow process.
Central and Eastern Europe (CEE) managed to continue the process of catching up with the eurozone economies in 2018. The economy remained consistently dynamic in 2018 and was able to break free from the slower performance within the eurozone. Economic growth for CEE (not including Russia) is expected to be at 4.3 per cent in 2018, with solid growth of 3.6 per cent forecast for 2019.
The economic environment remains a congenial one, particularly in the countries of Central Europe. With the exception of the Czech Republic, where the economic highpoint has already been passed, economic momentum accelerated further. Domestic demand is the essential driver of this performance, and unemployment rates reached all-time lows last year. The central banks in those countries that have their own currencies are signalling a return to normal interest rates, albeit at differing speeds. The Czech National Bank tightened its monetary policy considerably in 2018 and implemented five interest rate hikes. The key interest rate in Hungary has remained unchanged so far, although a gradual return to normal monetary policy is in preparation. The Polish Central Bank has had little incentive so far to change its loose monetary policy given the restrained price developments in Poland.
Macroeconomic stability remains high in Russia even though economic momentum fell. It is difficult for the Russian economy currently to generate economic growth substantially above long-term potential growth. The significant fall in the price of oil is also playing a part in this. Economic recovery is continuing in Ukraine, and the agreement with the International Monetary Fund for a new credit programme for macroeconomic stability is contributing to this.
The high point of business activity was reached in Southeastern Europe in 2018 with growth expected to be at 3.4 per cent. The situation on the labour markets in the region also improved significantly thanks to the positive economic performance. Overall economic conditions will therefore also remain favourable in 2019.