European Union officials have slashed their growth forecast for the 19 countries that use the euro, saying even the lower estimate was vulnerable to “large uncertainty” from slowing growth in China and weakening global trade.
The EU’s executive Commission cut the forecast for this year to 1.3 percent from 1.9 percent in their earlier forecast issued in the autumn. The eurozone probably grew 1.9 percent last year, slowing from a 10-year high of 2.4 percent in 2017, before rebounding in 2020 to 1.6%.
All countries in the 28-state European Union are poised to continue growing, with the bloc expected to post its seventh consecutive year of expansion, but the larger member states will brake significantly.
The Commission said that China’s economy may be slowing more sharply than anticipated and global financial markets and many emerging markets are vulnerable to abrupt changes in risk sentiment and growth expectations.
But it also mentioned internal factors as causes for the worsened outlook, notably slower car production in Germany, social tensions in France and “strong uncertainty on budget policies in Italy,” EU economics commissioner Pierre Moscovici told a news conference.
One notable downgrade was Germany, the biggest economy in the eurozone. The 2019 forecast was cut to 1.1 percent from 1.8 percent, “as a result of weakening export growth” and “disappointing” domestic consumption, Moscovici said. Germany’s expansion was further slowed by what it is hoped were temporary troubles in the auto industry. Volkswagen and Daimler faced bottlenecks getting cars certified under new emissions tests that took effect Sept. 1.
France’s economic expansion is expected to slacken to 1.3% this year from 1.5% in 2018, after “yellow vest” protests weakened growth over the last months.
Italy, the third largest economy in the euro zone, is expected to post the slowest growth rate in the whole EU with a mere 0.2% expansion this year.
Meanwhile, the Commission also revised downwards its growth predictions for Ireland for this year as the country’s economic outlook remains clouded by uncertainty.
All euro zone countries will grow this year at a slower pace than in 2018, the commission forecast, except Greece, which after exiting its bailout programme in 2018 is expected to expand by more than 2% both this year and next.
Britain’s growth is expected to slow to 1.3% this year – a touch higher than its previous forecast – up from 1.4% in 2018.
However, the Commission underlined that forecasts on Britain are based on the “technical assumption” that EU-UK trade will not be affected by Brexit.
The Commission also stressed the outlook was subject to large uncertainty and risks of further downward revisions caused mostly by the unclear Brexit process.
In its quarterly economic forecasts, the EU executive also revised down its estimates for the inflation in the 19-country currency bloc next year.
Inflation is now is expected to be lower than forecast by the European Central Bank – likely complicating the bank’s plans for an interest rate hike this year.
In a further concern for the ECB, the Commission expects euro zone inflation to be at 1.4% this year, below ECB estimates of 1.6% rate, and further away from the bank’s target of a rate close to 2%.
Since December, ECB policymakers have said that the bank’s forecasts are likely to be revised down in March.
Core inflation, which excludes volatile prices and is closely watched by the ECB for its policy decisions, will increase gradually, the commission predicted, citing positive labour market developments.