Page 14 - Economic report 2018

Commission indicates that one priority is to improve productivity in order to increase wages, and
subsequently inflation, without losing competitiveness.

In 2018, Eurozone inflation remained contained, in a context of slowing activity. Specifically,
inflation followed a rising phase between May and October, when it hit a high of 2.3%,
marked by the trend in oil prices, but slowed
in November and December to end the year Prices remain contained in a context
at 1.5%. On annual average, inflation was of slowing activity.
1.8%, three tenths higher than the 1.5% of
the previous year. All Eurozone economies
saw positive annual inflation rates, but only seven crossed the threshold of 2%. Inflation in
the core European countries remained moderate: France (2.1%), Germany (1.9%), Spain (1.7%)
and Italy (1.2%). The highest price increases were seen in Eastern countries: Estonia (3.4%),
Latvia (2.6%), Lithuania (2.5%) and Slovakia (2.5%).

Finally, fiscal policy was less contractionary than in the previous year. The global public deficit
of Eurozone members fell from 1% of GDP in 2017 to 0.5% in 2018. The falling deficit can
be explained by both a drop in GDP expenditure of two tenths, to 46.8%, and an increase
in income of two tenths, to 46.3% of GDP. The EMU countries with the highest deficit are
Cyprus (-4.8% of GDP), France (-2.5%), Spain (-2.5%) and Italy ( 2.1%). On the other hand,
the member states with the highest public account surplus in terms of GDP are Luxembourg
(2.4%), Malta (2%), Germany (1.7%) and Netherlands (1.5%). The public debt-to-GDP ratio
continued its falling trend in 2018, shrinking
In 2018, the Eurozone public deficit fell two percentage points to 87.1%, thanks to
12 to 0.5% and the debt to 87.1% of GDP. both the increase in GDP and the low cost
of financing.

As for monetary policy, interest rates in the USA reached a range of 2.25-2.5% at the end
of 2018, after four stepped rate rises throughout the year (in March, June, September and
December) intended to prevent overheating of the economy in its ninth year of expansion.
However, at the beginning of 2019, the Federal Reserve (Fed) announced that it would pause
The external environment of the Andorran economy | I. The international economy
interest rate rises until economic and financial data improved.

In the Eurozone, monetary policy was influenced by the described context of economic
slowdown and low inflation. For this reason, the European Central Bank (ECB) kept the official
interest rates at 0%, which are not expected to rise until the economic situation improves

OFFICIAL INTEREST RATES IN THE USA AND EUROZONE - As %
Chart 1.4

USA Eurozone
Source: Federal Reserve and ECB.