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EU cuts forecasts for economic growth amid global uncertainties

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EU cuts forecasts for economic growth amid global uncertainties

Pierre Moscovici - Photo EC

(BRUSSELS) - Trade tensions and the possibility of a disruptive Brexit are likely to contribute to a slowdown in Europe's economy in 2019, the European Commission said in its Winter Economic Forecast, outlined Thursday.

The Winter 2019 Economic Forecast projections show the economy growing for the seventh year in a row, with expansion forecast in every EU Member State. But the pace of growth overall is projected to moderate compared to the high rates of recent years and the outlook is subject to large uncertainty.

"After its 2017 peak, the EU economy's deceleration is set to continue in 2019, to growth of 1.5%," said Pierre Moscovici, the Commissioner for Economic and Financial Affairs: "This slowdown is set to be more pronounced than expected last autumn, especially in the euro area, due to global trade uncertainties and domestic factors in our largest economies."

However, he added that Europe's economic fundamentals "remain solid and we continue to see good news particularly on the jobs front. Growth should rebound gradually in the second half of this year and in 2020."

According to the forecast, economic activity moderated in the second half of last year as global trade growth slowed, uncertainty sapped confidence and output in some Member States was adversely affected by temporary domestic factors, such as disruptions in car production, social tensions and fiscal policy uncertainty. As a result, gross domestic product (GDP) growth in both the euro area and the EU likely slipped to 1.9% in 2018, down from 2.4% in 2017 (Autumn Forecast: 2.1% for EU28 and euro area).

Economic momentum at the start of this year was subdued, but the fundamentals remain sound. Economic growth will continue, albeit more moderately. The European economy is set to continue to benefit from improving labour market conditions, favourable financing conditions and a slightly expansionary fiscal stance. Euro area GDP is now forecast to grow by 1.3% in 2019 and 1.6% in 2020 (Autumn Forecast: 1.9% in 2019; 1.7% in 2020). The EU GDP growth forecast has also been revised down to 1.5% in 2019 and 1.7% in 2020 (Autumn Forecast: 1.9% in 2019; 1.8% in 2020).

Among the larger Member States, downward revisions for growth in 2019 were sizeable for Germany, Italy, and the Netherlands. Many Member States continue to benefit from robust domestic demand, also supported by EU funds.

Consumer price inflation in the euro area fell towards the end of 2018 due to a sharp drop in energy prices and lower food price inflation. Core inflation, which excludes energy and unprocessed food prices, was muted throughout the year, despite faster wage growth. Overall inflation (HICP) averaged 1.7% in 2018, up from 1.5% in 2017. With oil price assumptions for this year and next year now lower than in autumn, euro area inflation is forecast to moderate to 1.4% in 2019 before picking up mildly to 1.5% in 2020. For the EU, inflation is forecast to average 1.6% this year and then pick up to 1.8% in 2020.

A high level of uncertainty surrounds the economic outlook and the projections are subject to downside risks. 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. For the EU, the Brexit process remains a source of uncertainty.

Winter 2019 Interim Economic Forecast - full document


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