The European economy is holding up very impressively, despite the hostile international environment. For example, in the first quarter of 2019 the macroeconomic growth rate of the euro area recorded another significant rise compared to the weaker second half of 2018, above all thanks to vigorous consumer spending on the part of private households. Consumers in turn are benefiting from favourable labour market developments, with more jobs and rising incomes.
But while general economic development may look healthy in the rear-view mirror, there is considerable uncertainty over how things will develop over the next few months, both from an economic and a political standpoint. The intensification of the trade dispute between the United States and China does not bode well for global trade, with the European economies that are heavily dependent on foreign trade likely to suffer in particular. The European manufacturing sector is seeing a worrying decline in foreign orders, with Germany being disproportionately affected by this development.
The outlook for the European elections has also done nothing to lift the general mood. All the signs point to populist and Eurosceptic forces performing better than ever. Although there is some evidence that the financial markets have become accustomed to this to some degree, the current relative calm and composure could turn out to be deceptive. In the states of the EU periphery, political resistance to the EU’s fiscal rules is growing. Populist forces on both the left and right side of the political spectrum are calling for an end to austerity and reform policies. This harbours significant risks for the Eurozone.