European Union cuts eurozone growth forecast, inflation to slow

EU slashes its forecasts for eurozone economic growth

Clouds on the horizon are also getting darker, the commission said. But the risks are clearly on the downside, explained the Commissioner for Economic Affairs, Pierre Moscovici.

The economic slowdown forecast by the commission is worse than that seen by the ECB in its latest projections released in December last year, when the bank expected the eurozone to grow by 1.7 percent this year.

Italy, the third largest economy in the euro zone, is expected to post the slowest growth rate in the whole European Union with a mere 0.2 percent expansion this year.

For next year, the output is expected to pick up, although slightly less than initially expected, to reach 1.6% for the eurozone and 1.8% for the European Union as a whole. 2019 is expected to be the seventh straight year of economic growth.

Europe "does seem to be more affected than other areas by the slowdown in global trade", Moscovici explained. Trump has said he plans to raise tariffs, or import taxes, on US$200-billion worth of Chinese imports on March 2 if no deal is reached.

The euro area was particularly impacted by the trade tensions triggered by the US-China dispute "given the geographical orientation of its external trade and its product specialisation" the forecast document reads.

On that front, Commission forecasters also warned that the domestic drivers of the expansion in the euro area have "softened". The ECB said incoming data have "continued to be weaker than expected on account of softer external demand and some country and sector-specific factors".

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For the European Union, Brexit remains a source of uncertainty, the commission said.

The improving situation of the labour market across Europe, the slightly expansionary fiscal policy and the low financing costs are still fueling the expansion even if at a slower pace.

In its forecasts, the commission sees the 19-nation eurozone economy expanding 1.3 per cent this year, down from 1.9 per cent projected in November.

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Germany, Italy and the Netherlands all saw sizeable downgrades for their growth outlook. Next year, the bloc is forecast to expand by 1.8 per cent. It blamed uncertainty over government policies and higher borrowing costs for pushing Italy into recession in the second half of a year ago. A raft of risks is stalking the European and global economies, including China's slowdown, a trade dispute between the US and China that has created new import taxes, and the chance that Britain could leave the European Union in March in a chaotic fashion without approving a transition agreement.

The latest growth forecast may force Italy to again review its spending plans for 2019 in order to satisfy Brussels and assuage investors. It dropped by 0.4% month/month - better than the previous month's revised fall of 1.3% but confounding expectations of a 0.8% increase.

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