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EU reduced economic forecast


Friday, February 8, 2019

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.

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

A raft of risks is stalking the European and global economies, including China's slowdown, a trade dispute between the U.S. 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. Other risks include sudden shifts in financial markets.

The Commission stressed Thursday that it simply couldn't predict how bad any of the problem areas could turn out to be.

"A high level of uncertainty surrounds the economic outlook," the forecast report said. "Trade tensions, which have been weighing on sentiment for some time, have alleviated somewhat but remain a concern."

"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."

Trade tensions between the U.S. and China appear to have eased for the moment, as the two sides are talking about how to address what U.S. President Donald Trump considers an excessive trade deficit with China and the country's handling of foreign intellectual property. Trump has said he plans to raise tariffs, or import taxes, on $200 billion worth of Chinese imports on March 2 if no deal is reached.

British Prime Minister Theresa May has so far failed to win a majority in parliament for her negotiated exit from the EU, scheduled to happen March 29. If no deal is approved, that raises the possibility of an exit without a framework on how cross-border trade would be conducted as the two sides seek a new, long-term trade deal.

Europe's "does seem to be more affected than other areas by the slowdown in global trade," said Pierre Moscovici, the EU's commissioner for economic and financial affairs. "Nonetheless, Europe's economic fundamentals remain solid." 2019 is expected to be the seventh straight year of economic growth.

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.

The Commission cut its 2020 forecast for the eurozone to 1.6 percent from 1.7 percent in the autumn forecast.

For the full 28-member European Union, growth forecasts were cut to 1.5 percent in 2019 from 1.9 percent, and to 1.7 percent in 2020 from 1.8 percent.

The Commission, the executive arm of the EU, publishes two comprehensive forecasts in spring and autumn and two updates in winter and summer.

By: DocMemory
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