The European Commission sharply cut on Thursday its forecasts for euro zone economic growth this year and next because it expects the bloc’s largest countries to be held back by global trade tensions and an array of domestic challenges.
In its quarterly economic forecasts, the EU executive also revised down its estimates for the inflation in the 19-country currency bloc next year, which 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.
The Commission said euro zone growth will slow to 1.3 percent this year from 1.9 percent in 2018, before rebounding in 2020 to 1.6 percent.
The new estimates are far less optimistic than those released in November, when Brussels expected the euro zone to grow 1.9 percent this year and 1.7 percent in 2020.
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 cited global trade tensions and China’s slowdown as the main drags on the European Union’s economy.
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.
The euro fell to a two-week low after the cut in forecasts was released.
In Germany, the bloc’s largest economy, growth is expected to slow to 1.1 percent this year from 1.5 percent in 2018. The Commission had previously forecast 1.8 percent growth this year.
France’s economic expansion is expected to slacken to 1.3 percent this year from 1.5 percent 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 percent expansion this year.
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 percent both this year and next.
Britain’s growth is expected to slow to 1.3 percent this year – a touch higher than its previous forecast – up from 1.4 percent in 2018. However, it underlined that forecasts on Britain are based on the “technical assumption” that EU-UK trade will not be affected by Brexit.
