European Union slashes 2019 growth forecast

European Union slashes 2019 growth forecast

Another problem is Italy, which the commission said would grow by a paltry 0.2 per cent this year, still better than a recession, but a huge cut from the 1.2 per cent forecast late last 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 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.

The lowered outlook comes two months after Rome and Brussels reached a compromise over Italy's deficit target and will likely make it more hard for the populist coalition to carry out its expansive spending plans.

The gloomier forecast reflects more pronounced weakness in the region, which stumbled at the end of 2018 as political instability continued to rock Italy, violent protests in France depressed output, and Germany's auto industry struggled to rebound from changes in regulation, according to Bloomberg. 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.

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.

European Union chiefs are concerned about a possible no-deal Brexit, with no agreement yet in place just 50 days before Britain leaves on March 29.

That makes a tightening of monetary policy this year by the European Central Bank even less likely than previously, and that will likely ensure that the recent weakness of the Euro continues near-term.

According to the EC, next year the eurozone is forecast to expand by 1.8 per cent.

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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.

The EU also cut Italy's growth rate to a five-year low, a situation that risks reopening bitter differences between Brussels and Rome about the government's spending plans this year.

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

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. "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 also stressed the outlook was subject to large uncertainty and risks of further downward revisions caused mostly by the unclear Brexit process.

An increasingly anaemic economy will test the resolve of the European Central Bank to stick 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 Commission cut its 2020 forecast for the eurozone to 1.6 percent from 1.7 percent in the autumn forecast. The ECB aims to get inflation to just below 2 per cent over the medium term.

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