EU cuts 2020 growth forecast as outlook is ‘clouded’

The European Commission (EC) on Wednesday cut its euro area GDP growth and inflation forecast for next year as it warned the near-term outlook for the European economy “is clouded by external factors.”

The EC warned a “no deal” Brexit remains a “major source of risk.” 

In its Summer 2019 Economic Forecast, the EC said the European economy is set for its seventh consecutive year of growth in 2019, with all member states’ economies due to expand.

It said growth in the euro area was stronger than expected in the first quarter of the year due to a number of temporary factors such as mild winter conditions and a rebound in car sales.

But it cautioned: “The near-term outlook for the European economy, however, is clouded by external factors including global trade tensions and significant policy uncertainty.

“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. 

“As a result, the forecast for euro area GDP growth in 2019 remains unchanged at 1.2%, while the forecast for 2020 has been lowered slightly to 1.4% following the more moderate pace expected in the rest of this year (spring forecast: 1.5%).

“The GDP forecast for the EU remains unchanged at 1.4% in 2019 and 1.6% in 2020 …

“The forecasts for headline inflation in the euro area and the EU have been lowered by 0.1 percentage points this year and next, mainly due to lower oil prices and the slightly weaker economic outlook.

“Inflation (Harmonised Index of Consumer Prices) in the euro area is now forecast to average 1.3% in both 2019 and 2020 (spring forecast: 1.4% in 2019 and 2020), while in the EU it is forecast to average 1.5% in 2019 and 1.6% in 2020 (spring forecast: 1.6% in 2019 and 1.7% in 2020).”

EC Vice-President Valdis Dombrovskis said: “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.

“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.”