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European Commission Slashes Eurozone Growth Forecasts

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The European Commission on Tuesday slashed the growth forecasts for the euro area for this year and next, citing a "more pronounced" slowdown since the second half of last year, caused mainly due to weaker external demand, disruption in the automobile sector, policy uncertainty and Brexit worries.

In its Spring 2019 forecast, the executive arm of the European Union trimmed the growth forecast for this year to 1.2 percent from 1.9 percent predicted in the Autumn forecast in February.

Growth is expected to improve to 1.5 percent in 2020, which was smaller than the 1.7 percent expansion seen earlier.

"As initial deadlines for US-China trade negotiations and Brexit have passed without resolution, various uncertainties continue to loom large," the EU said.

"Substantial downside risks to the growth outlook remain in place."

The growth forecast for Germany for this year was slashed to 0.5 percent from 1.8 percent, mainly due to the troubles in the automotive sector due to the implementation of the new WLTP emissions testing regime. The pace of growth is expected to improve to 1.5 percent next year.

France's growth forecast for this year was lowered to 1.3 percent from 1.6 percent. The outlook for next year was reduced to 1.5 percent from 1.6 percent.

Italy's growth forecast for this year was slashed to 0.1 percent from 1.2 percent and the outlook for next year to 0.7 percent from 1.3 percent.

"Subdued economic growth and fiscal loosening are expected to affect public finances, with both government deficit and debt projected to increase substantially over the forecast horizon," the EU warned.

Spain's growth forecast for this year was lowered slightly to 2.1 percent from 2.2 percent and the outlook for next year to 1.9 percent from 2 percent.

Malta, Ireland and Slovakia are forecast to be the fastest growing euro countries this year. None of the countries are expected to have economic contraction this year and next.

Eurozone inflation is forecast at 1.4 percent this year and next, while it was seen respectively at 1.8 percent and 1.6 percent in February.

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