EU cuts euro zone growth forecast, inflation to slow


Output was down 0.4 percent on November - in huge contrast to a forecast from Reuters for an increase of 0.7 percent.

The European Commission has cut its forecast for Eurozone GDP growth this year to 1.3% from 1.9% and for next year to 1.6% from 1.7%. Next year, the bloc is forecast to expand by 1.8 per cent. The EU's growth as a whole was revised to 1.5 percent from 1.9 percent.

"We need to watch certain situations and the situation in Italy as far as growth is concerned is much worse with 0.2 percent, which is quite significant", EU Economic Affairs Commissioner Pierre Moscovici said in an interview with Bloomberg Television from Brussels.

European Union (EU) officials have slashed their growth forecast for the 19 countries that use the euro, saying even the lower estimate was vulnerable to "large uncertainty" from slowing growth in China and weakening global trade.

But it also mentioned internal factors as causes for the worsened outlook, notably slower vehicle production in Germany, social tensions in France and "strong uncertainty on budget policies in Italy", EU economics commissioner Pierre Moscovici told a news conference.

The gloomier forecast reflects more pronounced weakness in the region, which stumbled at the end of 2018 as political instability continued to rock Italy, violent protests in France depressed output, and Germany's auto industry struggled to rebound from changes in regulation, according to Bloomberg.

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In Germany, the bloc's largest economy, growth is expected to slow to 1.1 per cent this year from 1.5 per cent in 2018. "However, there have also been a number of domestic factors at play", it said, pointing to social tensions and budget-policy uncertainty in some countries, as well as weakness in the vehicle industry.

Speaking to Bloomberg, Ms Crowl said: "It's a little bit hard to be short but that's not without saying we can still see some pound weakness as we got into these negotiations, particularly against the U.S. dollar". "In the USA, the risk of an abrupt fiscal tightening appears to have increased, especially for 2020", according to the report.

It added: "Overall, the risks surrounding the Euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility".

The Commission highlighted that despite the downward revision and the increasing risks, "the fundamentals of the European economy remain sound".

Given the uncertainty around its exit from the European Union, the Commission's forecast is based on the status quo in terms of the trading relations between the United Kingdom and the rest of the European Union member states, Moscovici explained. European Central Bank policy makers already walked a fine line in December by downgrading economic forecasts at the same time as ending net asset purchases that have helped buoy euro-area demand. The ECB aims to get inflation to just below 2 percent over the medium term.

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