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EU Commission cuts euro zone growth forecasts, blames trade wars - REUTERS

JULY 12, 2018

BY Francesco Guarascio


BRUSSELS (Reuters) - The European Commission cut on Thursday its forecasts for the euro zone’s economic growth this year, saying the main causes for the revision were trade tensions with the United States and rising oil prices which are pushing the bloc’s inflation higher.

  • The slowdown of the euro zone economy is set to affect all major economies of the bloc, but is expected to hit Italy harder, as the country will record the lowest growth rate in Europe, matched only by Britain among all EU countries.

    The EU executive estimated the 19-country euro zone will grow by 2.1 percent this year, lower than the 2.3 percent gross domestic product (GDP) increase it had forecast in its previous estimates released in May. Next year the bloc’s growth should further slow to 2.0 percent, unchanged from the previous forecast.

    “The downward revision of GDP growth since May shows that an unfavorable external environment, such as growing trade tensions with the U.S., can dampen confidence and take a toll on economic expansion,” EU commission’s vice-president Valdis Dombrovskis said.

    Rising oil prices have also contributed to the slowdown, the EU economics commissioner Pierre Moscovici said, and are expected to push euro zone’s inflation up to 1.7 percent this year and next, from the previously estimated 1.5 percent in 2018 and 1.6 percent in 2019.

    Germany and France, the two largest economies of the euro zone, are expected to lose steam this year and next.

    Germany’s GDP expansion will slow to 1.9 percent this year and in 2019 from the previously estimated 2.3 percent in 2018 and 2.1 percent in 2019.

    France’s economy will grow 1.7 percent this year and next, less than the 2.0 percent the Commission had earlier forecast for this year and also slower than the 1.8 percent growth previously forecast for 2019.

    The slowest-growing economy of the bloc will remain Italy which is expected to grow only 1.3 percent this year, less than the 1.5 percent estimated in May.

    One of the causes cited by the Commission for the revision were “re-emerging concerns or uncertainty about economic policies”, as Italy’s new eurosceptic government has launched ambiguous messages on its future spending plans.

    Only Britain is expected to match Italy’s sluggish growth among all the 28 states of the European Union. It will grow 1.3 percent this year, according to the Commission, less than the previously estimated 1.5 percent growth.

    Britain’s inflation is also forecast to go up further to 2.6 percent this year, from a previous estimate of 2.5 percent.

    Reporting by Francesco Guarascio; editing by Robert-Jan Bartunek

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