European Commission Trims Growth Forecast, Cites 'Elevated' US Trade Uncertainty
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The European Commission trimmed its growth forecast for the single currency economy next year, Wednesday, citing uncertain U.S. trade policy as a key near-term risk, but noted that each of its member states is likely to continue expanding despite the weakening backdrop.
The European Union's executive published its quarterly economic outlook in Brussels amid a change in the region's parliament, the impending exit of the United Kingdom and ongoing trade tensions with the United States linked to both the automotive and the aerospace sectors. The Commission said the "elevated uncertainty" of U.S. trade policy, as well as an "extended economic confrontation between the US and China" remained major global economic risks.
"All EU economies are still set to grow this year and next, even if the robust growth in Central and Eastern Europe contrasts with the slowdown in Germany and Italy," said Commission Vice President Valdis Dombrovskis. "The resilience of our economies is being tested by persisting manufacturing weakness stemming from trade tensions and policy uncertainty. On the domestic side, a "no deal" Brexit remains a major source of risk."
The Commission said the Eurozone economy, which is made up of the 19 member states that use the euro currency, will grow by 1.2% this year, an estimate that is unchanged from its spring forecast, before expanding at a 1.4% clip in 2020. That figure, however, is down from a prior estimate of 1.5% and will come amid an inflation rate of just 1.3% for this year and next, a rate that sits well shy of the European Central Bank's 'just below 2%' target for price stability.
However, the Commission also noted that each of the Eurozone states, including Italy, will continue to expand, thanks to robust labor markets and resilient domestic demand and rising household consumption.
Germany's economy, the region's largest, will grow by around 0.5% this year before rebounding to a 1.5% expansion in 2020, the Commission said, while France will grow by 1.3% and 1.4% this year and next.
"The near-term outlook for the European economy, however, is clouded by external factors including global trade tensions and significant policy uncertainty," the Commission said. "These have continued to weigh on confidence in the manufacturing sector, which is the most exposed to international trade, and are projected to weaken the growth outlook for the remainder of the year."