EU slashes eurozone growth forecast as Germany cools

10 Février, 2019, 22:26 | Auteur: Auguste Feret
  • EU slashes eurozone growth forecast as Germany cools

European Commissioner for Economic and Financial Affairs Pierre Moscovici presents the EU executive's economic forecasts during a news conference at the EU Commission headquarters in Brussels, Belgium February 7, 2019.

Another problem is Italy, which the commission said would grow by a paltry 0.2 per cent this year, still better than a recession, but a huge cut from the 1.2 per cent forecast late last year.

The European Commission is now expecting growth of 1.3 per cent in the eurozone this year, down from the 1.9 per cent it predicted in November.

In its quarterly economic forecasts, the EU's executive arm also revised down its estimates for inflation in the 19-country currency bloc next year, which now is expected to be lower than forecast by the European Central Bank (ECB) - likely complicating the bank's plans for an interest rate hike this year.

The trend is supposed to reverse slightly next year when the bloc is forecast to expand by 1.8%.

Euro area economy is expected to slow down more markedly than initially expected, because of the impact of increasing risks, including a disorderly Brexit, and external tensions primarily driven by the US-China trade war.

According to Moscovici, the EU-27 is poised to continue growing with the bloc expected to post its seventh consecutive year of expansion. Global trade uncertainty and a sharper-than-expected slowdown in China also pose external risks to the economic outlook.

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In a further concern for the ECB, the Commission expects euro zone inflation to be at 1.4 per cent this year, below ECB estimates of 1.6 per cent rate, and further away from the bank's target of a rate close to 2.0 per cent.

The lowered outlook comes two months after Rome and Brussels reached a compromise over Italy's deficit target and will likely make it more hard for the populist coalition to carry out its expansive spending plans. Overall, growth in the European Union is expected to slow to 1.5% this year, a significant drop from the 2.1% that was registered in 2018.

European Union chiefs are concerned about a possible no-deal Brexit, with no agreement yet in place just 50 days before Britain leaves on March 29.

"In 2019, annual real GDP growth is forecast to fall to 0.2%, sizeably less than anticipated in the autumn forecast", the Commission said in reference to Italy's GDP growth, which it said was so affected by "policy uncertainty" that it had to revise down its forecast from several months ago by a full percentage point.

The EU's largest economy, Germany, is expected to slow even more steeply than the Commission's previous estimates of 1.8% in 2019.

The Commission also stressed the outlook was subject to large uncertainty and risks of further downward revisions caused mostly by the unclear Brexit process.

After December, ECB policymakers have said that the bank's new forecasts in March are likely to be revised down.

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