Page 13 - Economic report 2018

average 2.7% in nominal terms (0.6% in real terms after discounting price increases). On annual
average, consumer prices accelerated from 2.1% in 2017 to 2.4% in 2018. Rising inflation
justified the Federal Reserve’s monetary policy of gradually raising the interest rates in 2018.

Finally, the tax reform in 2017 and subsequent The Eurozone economy slowed in
increases in spending raised the level of fiscal the second half of 2018.
deficit and worsened the profile of US public
debt. The negative balance in the public
accounts went from 4.3% of GDP in 2017 to 6.6% in 2018, a trend that contrasts with the
adjustment of the previous year.

In 2018, the Eurozone economy weakened more than expected, mainly due to falling consumer
and business confidence, the effects of new emissions standards on the German automobile
industry, and the decline in the Italian economy. In 2018, real GDP in the Eurozone grew at an
annual rate of 1.9%, five tenths less than in 2017 and the lowest rate since 2014. Weakening
activity was particularly notable in the second half of the year, especially in Germany and Italy,
with quarter-on-quarter growth in Eurozone GDP of 0.1% in the third quarter and 0.2% in the
fourth. External factors contributed to this slowdown, such as growing uncertainty associated
with trade tensions, and also internal factors, including the weakness of automobile production
in Germany, political instability in Italy and social tensions in France.

By components, Eurozone growth was driven by domestic demand, thanks to dynamic investment
(going from 2.6% in 2017 to 3.3% in 2018), and the good trend in consumption, especially
public consumption, which maintained growth at around 1.1%, while private consumption
slowed three tenths to 1.3%. In contrast, foreign demand made a negative contribution to 11
GDP growth. This can be explained by exports slowing more than imports. So, there are two
factors that most explain the economic slowdown in the Eurozone: less impetus from exports,
affected by the slowdown in world trade, and slowing private consumption, influenced partly
by the entry into force of the new regulations on automobile emissions in Europe in early
September. This would largely explain the slight
decline in the current account surplus for the
Eurozone as a whole, from 3.9% of GDP in GDP GROWTH IN EMU COUNTRIES. 2018
2017 to 3.6% in 2018. Annual variation rates, as % Chart 1.3

Despite weakening activity in the Eurozone,
in 2018 the labour market continued to
improve. Specifically, the number of employed
increased 1.5% for the year, only one tenth
less than in 2017. This increase in employment
led the unemployment rate to fall from 9.1%
in 2017 to 8.2% in 2018. This is the lowest
rate since 2008, but still higher than the low
reached in 2007 (7.7%). According to European The external environment of the Andorran economy | I. The international economy
Commission forecasts, the 2019 rate could
equal that of 2007. For their part, unit labour
costs grew 1.9% due to a nominal wage increase
of 2.2% per worker, and a 0.3% increase in
productivity. Now, real labour costs, after
discounting the GDP deflator, increased 0.4%
after several years of constant reductions. This
means that in 2018, the Eurozone economy Source: European Commission (July 2019).
started to lose competitiveness. The European