EC forecasts growth, but slower than before

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Growth forecasts have been revised down for the eurozone and general EU area, according to the latest data release.


After five consecutive three-month periods of solid expansion, the European Commission (EC) has said that the rest of 2018 and 2019 may see slightly slower growth.

The prediction comes as part of the organization's Summer Interim Economic Forecast for the eurozone while trade turbulence and international squabbles affect the momentum of the bloc and the wider world.

Growth is expected to rise to 2.1 per cent by the end of the year and then two per cent for 2019 in both the EU and the euro area, the report's authors said.

This data was based on technical assumptions covering exchange rates, interest rates and commodity prices collected until June 28th 2018. For other incoming data, the collection period lasted until July 3rd.

Lower than forecast growth

The positive economic momentum that has been seen in previous quarters has now moderated and this forecast is 0.2 per cent lower than had been anticipated in the spring, both for the EU and the euro area.

It was attributed to a rise in oil prices, with inflation also now forecast to average 1.9 per cent in the EU and 1.7 per cent in the euro area.

Rising trade tensions, including trade wars between the US and China, and political uncertainty in some member states were also said to be playing a part in the slower growth.

It is expected that momentum should be able to strengthen a little in the second half of 2018 as labour markets improve, household debt declines and consumer confidence is boosted.

Modest growth for the UK

In the UK as Brexit fast approaches, the EC has predicted modest growth of 1.3 per cent for 2018. This reflects low consumer confidence as uncertainty over the withdrawal from the EU takes place.

Indeed, it means the British economy is joint bottom of the EU league table with Italy and one of the slowest in the bloc.

The EC said the UK is also particularly exposed to the escalating global trade tensions that are plaguing the world economy at present.

Given that Britain is set to withdraw from the EU in March next year, the 2019 predictions are "based on a purely technical assumption of status quo in terms of trading relations between the EU27 and the UK", the EC said.

However, growth forecasts were downgraded for all major economies in the EU, with even the German economy - the biggest exporter to the US - predicted to grow 2.3 per cent slower than had been forecast in the spring.

Reaction to the publication

Commissioner for economic and financial affairs, taxation and customs at the EC Pierre Moscovici warned that growth might turn out even lower than the forecasts suggest if trade tensions and protectionist measures increase further and trigger financial market volatility.

"Trade wars produce no winners, only casualties," he added.

Vice-President for the euro and social dialogue Valdis Dombrovskis said: "The growing external risks are yet another reminder of the need to strengthen the resilience of our individual economies and the euro area as a whole."

The EC now publishes two comprehensive forecasts each spring and autumn, as well as two interim forecasts in winter and summer. This replaces the three forecasts that had been produced in winter, spring and autumn since 2012.

It brings the organization in line with the European Central Bank, International Monetary Fund and Organization for Economic Co-operation and Development in terms of data releases.