Published: Sun, February 10, 2019
Economy | By

European Union slashes 2019 growth forecast

European Union slashes 2019 growth forecast

The Commission had previously forecast 1.8 percent growth this year.

The trend is supposed to reverse slightly next year when the bloc is forecast to expand by 1.8%. The EU cut its eurozone inflation forecast to 1.4 per cent from 1.8 per cent for 2019, and to 1.5 per cent from 1.6 per cent for next year.

Separately, the country's DIHK Chambers of Industry and Commerce cut its 2019 growth forecast for Germany to 0.9% from 1.7%, pointing to growing headwinds from overseas for Europe's biggest economy.

The EU Commission on Thursday sharply cut its forecasts for economic growth in the eurozone this year and next because of an expected slowdown in the largest countries of the bloc caused by global trade tensions and growing public debt.

But it also mentioned renewed concerns on debt sustainability, mostly in Italy, as a cause for the slowdown as Rome passed a free-spending budget forecast to have limited effects on growth.

A raft of risks is stalking the European and global economies, including China's slowdown, a trade dispute between the USA and China that has added new import taxes, and the chance that Britain could leave the European Union in March in a chaotic fashion without approving a transition agreement.

Germany, Italy and the Netherlands all saw sizeable downgrades for their growth outlook.

The eurozone's waning fortunes reflect a drastic turn from just two years ago when the currency area grew 2.4 per cent in 2017, the fastest pace in a decade. 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.

Instead, the German economy will most likely grow by only 1.1% this year from 1.5% in 2018.

"Uncertainty sapped confidence and output in some Member States was adversely affected by temporary domestic factors, such as disruptions in vehicle products, social tensions and fiscal policy uncertainty", Moscovici said.

Speaking to Bloomberg, Ms Crowl said: "It's a little bit hard to be short but that's not without saying we can still see some pound weakness as we got into these negotiations, particularly against the United States dollar". "In the United States, the risk of an abrupt fiscal tightening appears to have increased, especially for 2020", according to the report.

It added: "Overall, the risks surrounding the Euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility".

For the EU, Brexit remains a source of uncertainty, the commission said.

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

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