Economy in Europe: EU slashes eurozone growth forecast as Germany cools

Lloyd Doyle
February 10, 2019

Eurozone economic growth will slow significantly this year, the European Union said Thursday, as the currency union faces a ideal storm of weakening global trade and rising domestic risks led by a chaotic Brexit, according to a Dow Jones Newswires report supplied to Efe.

The economic slowdown forecast by the Commission is worse than that seen by the ECB in its latest projections released in December, when the bank expected the euro zone to grow by 1.7 percent this year. For 2020, it sees growth of 1.6 percent, down from 1.7 percent forecast earlier.

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.

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

Simultaneously, the eurozone is hampered by the fallout from protests in France, concerns over Italy's debt, and weakening manufacturing and export outlook in the EU's powerhouse, Germany.

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 previous year. A raft of risks is stalking the European and global economies, including China's slowdown, a trade dispute between the US and China that has created new import taxes, and the chance that Britain could leave the European Union in March in a chaotic fashion without approving a transition agreement. Previously, it was still 1.2 percent.

"Much of the euro area's loss of growth momentum can be attributed to fading support from the external environment, including slower global trade growth and high uncertainty regarding trade policies", the commission said. Instead of the 1.8 per cent growth now expected for the current year, only one percent. "However, there have also been a number of domestic factors at play", it said, pointing to social tensions and budget-policy uncertainty in some countries, as well as weakness in the auto industry.

The expansion continues but it will be moderate, the European Commission said on Thursday (7 February). "In the USA, the risk of an abrupt fiscal tightening appears to have increased, especially for 2020", according to the report. "The Chinese economy might be slowing more sharply than anticipated while many emerging markets are still vulnerable to sudden changes in global risk sentiment".

The Commission highlighted that despite the downward revision and the increasing risks, "the fundamentals of the European economy remain sound".

An increasingly anemic economy will test the resolve of the European Central Bank in sticking to its plans to gradually pare back its crisis-era stimulus.

Since December, ECB policymakers have said that the bank's forecasts are likely to be revised down in March. The ECB aims to get inflation to just below 2 percent over the medium term.

Other reports by Iphone Fresh

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