EU Cuts Eurozone Economic Projections Amid Trade Tension and Geopolitics

Forex News

The EU has released its quarterly economic forecasts, pointing risks from US economic policies, Britain's exit from the EU and free-spending plans in high-debt members, like Italy. The European Commission expects Eurozone growth to moderate from the 10-year high of 2.4% seen in 2017 to 2.1% this year and then further decline to 1.9% in 2019, compared to its prior projection of a 2.0% expansion. The EU overall is forecast to grow 2.1% this year, 1.9% in 2019, and 1.8% in 2020.

Meanwhile, German GDP is expected to expand by 1.7% this year after 2.2% growth in 2017, revising down its earlier estimate of 1.9%. German economic growth is expected to be 1.8% in 2019 instead of 1.9%, and 1.7%in 2020.

The UK economy is estimated to expand by 1.3% this year and by 1.2% in 2019, in line with previous forecasts. In 2020 growth is expected to remain at 1.2%. According to the European Commission, projections on British growth are based on a purely technical assumption given the uncertain outcome of the Brexit negotiations.

The revision, although expected, might complicate the European Central Bank's plans to wind down its stimulus program this year. The European Commission forecasts higher inflation of 1.8% in 2018 and 2019, which is more positive news for the ECB, as the Bank targets an inflation rate close to 2%.