EU Downgrades Eurozone Growth Outlook On Trade War Concerns

interim july12

Eurozone is forecast to grow slower than earlier projected this year, as economic momentum moderated in the first half after vigorous expansion, the European Commission said Thursday. Moreover, the EU warned that further escalation of trade tensions could take a toll on economic expansion.

The single currency bloc is forecast to grow 2.1 percent this year and 2 percent next year, the European Commission said in its latest Summer Interim Economic Forecast. The projection for this year was downgraded from 2.3 percent.

Nonetheless, the EU said growth momentum is expected to strengthen somewhat in the second half of 2018, as labor market conditions improve, household debt declines, consumer confidence remains high and monetary policy remains supportive.

Citing rise in oil prices, inflation forecast for this year was revised up to 1.7 percent from 1.5 percent estimated in Spring. Similarly, the outlook for 2019 was lifted to 1.7 percent versus 1.6 percent in the previous report.

"Growth in Europe is set to remain resilient, as monetary policies stay accommodative and unemployment continues to fall," Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs, said.

"The slight downward revision compared to the spring reflects the impact on confidence of trade tensions and policy uncertainty, as well as rising energy prices."

Moscovici cautioned that further escalation of protectionist measures is a clear downside risk.

Germany's real GDP is now expected to increase by 1.9 percent in 2018 and 2019, a downward revision compared to the Spring forecast.

EU noted that global trade policy uncertainty could affect the highly open German economy more strongly.

France's growth is set to gain momentum in the second half of this year, with GDP growth expected to expand by 1.7 percent in both 2018 and 2019.

Spain's economy is forecast to grow 2.8 percent this year on expansionary measures of the government. The rate is then set to slow to 2.4 percent next year.

Italy's real GDP is expected to grow by 1.3 percent in 2018 before easing down to 1.1 percent in 2019.

For the UK, a moderate GDP growth of 1.3 percent in 2018 is forecast. Growth is projected to remain weak at 1.2 percent next year on the Brexit uncertainty.

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