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  HOME | Business & Economy (Click here for more)

EU Growth Rates Cool amid Fears of Downgrade

BRUSSELS – The European Commission slashed on Thursday its economic growth forecast for the Eurozone during 2019 amid weaker global trade which is piling on the pressure on the bloc’s labor market.

The EC said growth of the euro area would slow from 1.9 percent in 2018 to 1.1 percent this year, while by 2020 growth is expected to stabilize to 1.2 percent.

The economic slump is mirrored globally with a projected GDP forecast of 3.2 percent, down from 2018’s 3.8 percent.

“We could be facing a period of high uncertainty related to trade conflicts, geopolitical tensions, weakness in the manufacturing sector and Brexit.

“The fundamentals of EU economy are sound, all countries should see their economies expand, even if at a slower pace EC Forecast,” said Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union.

The autumn macroeconomic projections published by the EC Thursday are more pessimistic than the previous reports published in July and include data for 2021 for the first time.

During that year, GDP across the 19 countries that share the euro is expected to grow by 1.2 percent and across the 28 member states growth will climb to 1.4 percent.

The EC said that persistent trade tensions between the United States and China, as well as high levels of political uncertainty, especially in the field of trade, have dampened investment, manufacturing and trade globally.

The report highlighted other risks such as the possibility of a hard Brexit, which would see the United Kingdom crash out of the European Union with no trade agreement in place, as well as a deeper slowdown than expected of the Chinese economy.

Brussels said that global economic growth will remain weak and, for that reason any growth in Europe will depend on the strength of sectors geared towards its internal market.

The Commission also said that the European economy was now in its seventh consecutive year of growth and would continue to expand during 2020 and 2021.

Labour markets across the region remain strong and unemployment continues to fall, but, the commission warned, the global backdrop continues to be gloomy and uncertainty looms.

“So far, the European economy has shown resilience amid a less supportive external environment: economic growth has continued, job creation has been robust, and domestic demand strong,” Dombrovskis said in a statement.

The Latvian politician warned that difficulties could occur in the future and again mentioned trade conflicts, weakness in the manufacturing sector, but also geopolitical tensions and Brexit as looming risks.

“I urge all EU countries with high levels of public debt to pursue prudent fiscal policies and put their debt levels on a downward path. On the other hand, those Member States that have fiscal space should use it now,” Dombrovskis added.

The message was geared towards economies like Germany and the Netherlands which have room for maneuver in their accounts and he proposed taking advantage of that now.

The recommendation could result in the adoption of more expansive fiscal policies.

Among the large economies that will lead GDP growth during 2019 are Spain (1.9 percent), followed by Netherlands (1.7 percent), France (1.3 percent), Germany (0.4 percent) and Italy (0.1 percent).

Brussels also pointed out that deficit levels will also deteriorate slightly.

The eurozone is expected to present a 0.8 percent deficit in 2019, 0.9 percent in 2020 and 1 percent in 2021.

Throughout the European Union deficit will be 0.9 percent this year, 1.1 percent the next and 1.2 percent in 2021.

As for the public debt of the 19 euro partners, it will go from 86.4 percent of GDP in 2019 to 85.1 percent in 2020 and 84.1 percent in 2021.

While across all 28 member states public debt will sit at 80.6 percent this year but will drop to 79.4 percent in 2020 and to 78.4 percent in 2021.

The unemployment rate among euro members will be 7.6 percent in 2019, 7.4 percent in 2020 and 7.3 percent in 2021.

While across the whole bloc it will be 6.3 percent, 6.2 percent and 6.2 percent for each consecutive year.

Eurozone inflation will be 1.2 percent this year and the next, but will rise to 1.3 percent in 2021, while in the EU it will remain at 1.5 percent in 2019 and 2020, to go to 1.7 percent one year later.

“All EU economies are set to continue expanding over the coming two years, in spite of increasingly strong headwinds,” Commissioner for Economic and Financial Affairs, Taxation and Customs Pierre Moscovici said.

“But the challenging road ahead leaves no room for complacency.

“All policy levers will need to be used to strengthen Europe’s resilience and support growth,” the commissioner concluded.

 

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