European Union lowers eurozone 2020 growth forecast

Andrew Cummings
July 10, 2019

During this and next year, GDP is expected to grow in all EU Member States.

The European Commission lowered its estimates on Wednesday for eurozone growth and inflation, saying uncertainty over U.S. trade policy posed a major risk to the bloc. Growth was also favored by fiscal policy measures, which made household disposable income in a number of Member States rising. These have continued to weigh on confidence in the manufacturing sector, which is the most exposed to worldwide trade, and are projected to weaken the growth outlook for the remainder of the year.

The European Commission said on Wednesday it has slightly increased its forecast for Slovenia's economic growth this year to 3.2% from 3.1% projected in May, as consumption is expected to remain strong.

The European Commission has revised down its 2020 growth forecast for the Eurozone, blaming heightened global trade tensions and the threat of a no-deal Brexit. The resilience of our economies is being tested by persisting manufacturing weakness stemming from trade tensions and policy uncertainty. Domestically, Brexit remains a major source of uncertainty, noted the forecast. Growth is expected to return to 1.4 per cent next year, less than the 1.5 per cent the commission predicted earlier. The Polish and Hungarian economies are set to grow by 4.4 per cent, Romania four per cent, Slovakia 3.6 per cent, Bulgaria 3.3 per cent, Slovenia 3.2 per cent, Croatia and Lithuania 3.1 per cent, Latvia three per cent, Estonia 2.9 per cent and the Czech Republic 2.6 per cent.

The Commission's summer forecast only updates the GDP and inflation figures for the European Union member states and the bloc as a whole.

Pierre Moscovici, EU Commissioner for Economic and Financial Affairs, told a news conference "the European economy continues to expand against a hard global backdrop". The main risk factors faced by Latvia include labor shortages and uncertainty caused by worldwide trade conflicts. "Overall, inflation is forecast to remain subdued at 0.9% 2019 and 1% in 2020".

An extended economic confrontation between the USA and China, together with the elevated uncertainty around U.S. trade policy could prolong the current downturn in global trade and manufacturing and affect other regions and sectors, it said.

"This could have negative repercussions for the global economy including through financial market disruptions".

Touching on tensions in the Middle East, the commission said that they could raise oil prices. Its growth forecast was improved to 2.3% for this year, in spite of prime minister Pedro Sánchez's difficulties to secure a majority after the inconclusive elections held in April.

This forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices with a cut-off date of 28 June.

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