European Commission cuts eurozone 2020 growth forecast on slow H2

Economic growth prospects for the eurozone have dimmed slightly next year, the European Commission said on Wednesday, on the back of more moderate expectations for the second half of 2019.

The Commission reduced its eurozone 2020 GDP growth forecast to 1.4%, a 0.1 percentage point drop from its previous outlook for 19-country currency union, on the back of projections of slower growth from spring onwards.

Central and eastern European growth was offset by weakness in Germany and Italy, the EU's executive body said.

Eurozone growth projections for this year were left unchanged at 1.2%.

Growth in the wider 28-country EU is still expected to be 1.4% in 2019 and 1.6% in 2020.

Policy and trade uncertainty continue to cloud short-term forecasts, but downside risks have increased in light of the interconnectedness of global trade and the impact on that of the US-China trade war.

The spectre of  Brexit remains a bearish factor locally, the Commission added, but current forecasts remain based on no disruption of trade between the UK and its former EU partners, despite market expectations of the country quitting the bloc without a deal have continued to rise.

“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,” said European Commission vice president for the euro and social dialogue Valdis Dombrovskis.

“The resilience of our economies is being tested by persisting manufacturing weakness stemming from trade tensions and policy uncertainty,” he added.

Eurozone inflation is also expected to remain subdued as a result of falling oil prices and economic weakness.

The Commission cut its average inflation forecast for 2019 and 2020 from 1.4% to 1.3%.