EU cut Eurozone growth forecast, while Germany economy weakened.

Economists cut estimates sharply after turbulent end to 2018

Eurozone growth forecasts for this year have dropped to fresh lows, reflecting how global trade war concerns and political uncertainty are weighing on economic activity. The revision is particularly steep for Germany, for years the locomotive of eurozone growth. Germany is now forecast to grow more slowly than France this year, while Italy, the eurozone’s third-largest economy, is also expected to be one of the worst performers, with anaemic growth of just 0.7 per cent forecast for 2019. Economists surveyed by Consensus Economics expect eurozone gross domestic product to grow just below 1.6 per cent this year — 0.4 percentage points lower than forecast last March, when estimates were at their most optimistic.

 

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It compares with expected growth in 2018 of 1.9 per cent and would mark a second consecutive annual slowdown. The eurozone grew 2.4 per cent in 2017, its highest level in a decade. “We’re inclined to view the current state-of-play as a mirror image of the euphoria at the end of 2017, when forecasters were extrapolating growth at nearly 3 per cent into the distant future,” said Claus Vistesen, chief eurozone economist at Pantheon Economics. James Nixon, chief European economist at Oxford Economics, said the eurozone downgrades reflected the weakness in the second half of 2018, partly due to the pronounced effects of new emission standards on Germany’s car sector.  Germany is now forecast to expand at below 1.5 per cent in 2019, 0.4 percentage points below consensus forecasts of last March. Data released on Monday showed a 3.2 per cent contraction in new foreign industrial orders for German companies in November compared with the previous month. Separately, a survey of sentiment showed German investor expectations dropping to the lowest level since August 2012.

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The gloom follows Germany’s first quarter-on-quarter contraction since 2015 in the third quarter, on the back of weakening domestic demand and a contraction in exports. But Mr Nixon said that the eurozone growth forecasts’ downgrades also reflected “continued anxiety about the new wave of protectionism emanating from the US” and the effects of protests in France in the last quarter of 2018. Trade has been one of the components with the largest downward revision, reflecting the depth of global tension over a tariff war between the US and China. Economists now forecast nominal eurozone export growth in 2019 of 2.9 per cent, nearly one percentage point below last year’s spring forecasts.


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However consumer spending is expected to be supported by a relatively tight jobs market and low interest rates. Economists’ expectations for private and government spending growth for this year have remained largely stable. “Domestic demand is expected to hold up rather well in 2019 as consumers’ purchasing power is boosted by lower inflation, stronger wages and significant tax cuts in France and Italy,” said Mr Nixon. Despite a slowdown from growth above 3 per cent in the three years to 2017, Spain is expected to be one of the fastest-growing of the eurozone’s larger economies this year, at above 2 per cent. Arne Pohlman, economist at Focus Economics said: “The eurozone economy has shifted from a recovery boom in 2017 to a slower cruising speed.”

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Source: www.ft.com

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