The European Commission, the International Monetary Fund, and the OECD predict that, on average, the European Union's economy will grow by 1.9 percent next year, a rate that is broadly consistent with the average of 2 percent expected for this year. But the picture this paints may prove to be overly optimistic, not only because the growth rate itself is likely to disappoint, but also because there is significant downward pressure on the EU's growth potential beyond 2019 – pressure that, at present, European leaders seem unprepared to counter effectively.

If the EU were a soccer team, it would not lose games for lack of a game plan or due to inadequate capacity. Worth nearly 19 trillion U.S. dollars, the EU's economy remains the world's second largest, constituting about one-fifth of the global output. The problem is that the team as a whole is not playing cohesively, and all of the top players are struggling individually, owing to messy problems at home.

Over the last year, small steps – such as strengthening the collective financial safety net – have been taken to enhance the EU's overall capacity to handle bumps in the road. But the economy's overall architecture remains incomplete. The problems are particularly notable in the Eurozone, which is challenged by slow progress on banking union, inadequate fiscal-policy coordination, and political divisions.

And the forces of fragmentation will only strengthen. For starters, populist political parties and leaders are increasingly influential, having capitalized on widespread anxieties about identity and migration, together with frustration with mainstream elites, to win support, and even power, in many countries. But the transition from campaigning to decision-making – whether within parliament or, as in Italy, within the governing coalition – has proved to be difficult for several of the anti-establishment parties, given their lack of comprehensive policy platforms.

Together with the election for the European Parliament scheduled for next year, this added a layer of uncertainty that complicates region-wide coordination and decision-making, at a time when many policymakers are already preoccupied with the as-yet-unresolved issue of Brexit. As a result, they have even less capacity to dedicate to removing impediments to productivity growth and building a more agile economy capable of responding to rapid technological advances and changes in the global economic environment.

It doesn't help that Europe's liquidity environment is also becoming less supportive. Having already slowed its asset purchases, the European Central Bank is set to wind down its massive stimulus program at the end of this year. ECB President Mario Draghi has signaled that an interest-rate hike is likely to follow by the end of his term, in October 2019.

But while these factors threaten to exacerbate the challenge of fragmentation confronting the EU economy, even a disjointed team can secure a victory if its star players manage to perform strongly enough. Unfortunately, domestic issues that defy simple solutions and constrain both national and European policymaking are roiling many of the EU's biggest economies – France, Germany, Italy, Poland, Spain, and the United Kingdom.

France is being shaken by the “Yellow Vest” protests against President Emmanuel Macron's reform agenda. Germany is facing a deep political transition, as Chancellor Angela Merkel prepares to retire at the end of her current term. And Italy's populist government is at loggerheads with the European Commission over its proposed 2019 budget, which is also based on optimistic assumptions for GDP growth.

As for Poland, its government has embraced so-called illiberal democracy, and is pursuing policies that many view as inconsistent with the EU's values and vision. Spain's government, for its part, remains weak. And in the UK, divisions within the ruling Conservative Party are hampering progress toward an orderly Brexit process, precluding meaningful pro-growth and pro-productivity policy initiatives.

With these challenges unlikely to be resolved soon, Europe's key growth engines seem set to lose steam throughout 2019. Meanwhile, policy efforts to promote the EU's longer-term growth potential will probably remain the exception, rather than the rule. All of this will happen within an external environment that is less supportive, both economically and financially.

Already, the EU's export engine is not powerful enough to offset weakening domestic drivers of growth. And yet exports are set to suffer further, as a slowing China undermines external demand. Meanwhile, financial-market volatility is likely to continue, amid slowing global growth, technical vulnerabilities, and the reversal of volatility-repressing monetary expansion, which included ample and predictable liquidity injections by central banks.

So the EU “team” is set to face serious challenges both in domestic play and international competition. But the news is not all bad: technically, the EU has both the game plan and the inherent strengths it needs to perform. The economy has recovered from the worst of the global financial crisis. A lot of work has been done to identify the policy steps required to achieve strong and inclusive growth, reduce financial vulnerability, and stop the erosion of the pillars of longer-term prosperity. And the EU has considerable untapped or underused internal capabilities. Unleashing them in the context of a coordinated strategy could improve the EU's economic performance and prospects considerably.

Success will require political leaders who are capable of inspiring the public and willing to pursue consistent pro-growth policy initiatives. The longer it takes for such leaders to emerge, the more difficult it will be for the EU to avoid a relegation battle.

Copyright: Project Syndicate