EU economic recovery continues but consumer spending set to slow
The European Commission (EC) has released its latest economic forecast (Spring 2017), which predicts the likely shape of the EU and member state economies through to 2018.
It highlights that the European economy has entered its fifth year of recovery, which is now reaching all EU Member States. This is expected to continue at a largely steady pace this year and next.
However, inflation has risen significantly in recent months in the EU, mainly due to oil price increases. Any increase in inflation, in particular when it exceeds wage rate growth, will negatively impact consumer demand.
As such, private consumption expenditure (or consumer spending), the main driver of EU GDP growth, is set to moderate this year as inflation partly erodes gains in the purchasing power of households. As inflation bites, consumers have less disposable income and can be expected to cut back expenditure on all goods and services, including food purchases. However, this does follow from the fastest rate of consumer spending expansion in 10 years during 2016.
For the pig meat industry, a forecast slowdown in consumer spending in Germany, Spain, France and Italy, all important EU pork consumers, could be particularly relevant. This could feed into the already declining consumer demand for pork within the EU (to read more click here), perhaps encouraging a reduction in purchases or a switch to cheaper poultry meat. However, the slowdown is not universal, with expenditure growth in Denmark expected to stand on 2016 levels this year, while growth in the Netherlands and Poland is actually forecast to increase on the year.
Moving into 2018, inflation is forecast to ease and so consumer spending is then anticipated to pick up slightly across the EU. However, the outlook for key pig meat consuming countries remains mixed. Forecast improvements to German, Italian and French consumer spending are contrasted with some slowing from Spain and the Netherlands.
Altogether, while the overall outlook for the European economy appears broadly positive, rising inflation and political instability offer reasons for caution. To read more about the latest European Economic Outlooks, click here.
Sarah Baker, Senior Analyst
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