EU cuts eurozone growth forecast

Postado Fevereiro 10, 2019

European Union officials have slashed their growth forecast for the 19 countries that use the euro, saying even the reduced estimate was vulnerable to "large uncertainty" from slowing growth in China and weakening global trade.

On inflation, the commission cut its 2019 eurozone forecast to 1.4 per cent, down from 1.8 per cent in earlier projections.

France, Italy, Spain and the Netherlands are also forecast to reduce the pace of their expansion, with Italy expected to be the slowest economy in the whole European Union with a mere 0.2 per cent growth this year.

Next year, the bloc is forecast to expand by 1.8 percent.

"The slowdown is set to be more pronounced than expected last autumn, especially in the euro area", Economy Commissioner Pierre Moscovici said.

The prospect of the United Kingdom exiting the EU without a deal is also fueling "large uncertainty" and raising the threat of greater economic disruption than now anticipated, according to the bloc's executive, the European Commission.

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 pound has been helped by the euro slumping to a two-week low as traders nursed losses in a week of gloomy data indicating an economic slowdown in Europe was spreading quickly. 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.

But it also mentioned internal factors as causes for the worsened outlook, notably slower vehicle production in Germany, social tensions in France and "strong uncertainty on budget policies in Italy", EU economics commissioner Pierre Moscovici told a news conference.

The commission cited global trade tensions and China's slowdown as the main drags for the EU's economy.

France, Italy, Spain and the Netherlands are also forecast to reduce the pace of their expansion, with Italy expected to be the slowest economy in the whole bloc with a mere 0.2 percent growth this year. However, it underlined that forecasts on Britain are based on the "technical assumption" that EU-UK trade will not be affected by Brexit.

But the increasing struggles in Germany - the bloc's largest economy valued at £3.1trillion - is driving fears over the future of the eurozone, with claims Germany slid into outright recession at the end of past year.

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

As a result, euro area countries are expected to grow this year 1.3%, compared with 1.9% projected three months ago. European Central Bank policymakers already walked a fine line in December by downgrading economic forecasts at the same time as ending net asset purchases that have helped buoy eurozone demand.