Eurozone growth forecast cut as global risks, Brexit loom
BRUSSELS, Belgium – The European Union (EU) cut Tuesday, May 3, its eurozone growth forecasts for this year, warning that global risks including the slowdown in China and the danger of Britain leaving the bloc were harming the economic recovery.
The European Commission, the EU's executive arm, also warned that major member states France, Spain, and Italy were on course to break the bloc's rules on public spending.
Warning of increased global risks for the 19-country single currency area as it continues its sluggish recovery, the Commission trimmed its 2016 forecast to 1.6% from 1.7%.
The Commission also said that eurozone growth would accelerate to 1.8% growth next year, instead of the earlier forecast 1.9%.
"Growth in Europe is holding up despite a more difficult global environment," said EU Economic Affairs Commissioner Pierre Moscovici, who unveiled the forecast at a press conference in Brussels.
"The recovery in the euro area remains uneven, both between member states and between the weakest and the strongest in society. That is unacceptable and requires determined action from governments, both individually and collectively."
Eurozone nations are still dealing with the threat of a new crisis in debt-hit Greece, which nearly crashed out of the currency a year ago, as wrangling continues over its huge bailout.
The EU warned that the "uncertainty surrounding the forecast is extraordinarily high," suggesting major revisions to the outlook could be expected in the future.
"External risks include the possibility that slower growth in emerging markets, particularly China, could trigger stronger spillovers or turn out worse than expected," the Commission's forecast said.
UK referendum 'uncertainty'
It also pointed to domestic problems in Europe that posed "considerable" risks, including the slow pace of reforms "and the uncertainty ahead of the UK's EU referendum."
These dangers "could prove to be stronger than expected", the Commission warned.
Britain's own economy faces risks from the June 23 referendum with the EU firmly slashing its growth outlook for the UK.
It projected British annual growth of 1.8% in 2016 and 1.9% in 2017, compared to its earlier forecast in February of 2.1% for both years.
Moscovici said that the forecast was based on Britain remaining in the EU.
The commission said that growth in the eurozone would continue to show wide divergences between countries.
Greece will be the only eurozone member in recession this year with a contraction of 0.3% as fallout from debt crisis continued to affect the economy.
Growth in Ireland would lead the single currency zone with a huge 4.9% expansion this year.
The Commission said inflation would also continue to be very low and far off the 2.0% target of the European Central Bank.
The Commission slashed its inflation forecast for the eurozone to 0.2% in 2016 and to 1.4% in 2017.
The ECB has cut interest rates to 0%, beefed up its controversial bond-buying program, and made vast amounts of cheap loans available to banks in a bid to jumpstart inflation.
Nonetheless, inflation in the eurozone was -0.2% in April.
The Commission forecasts also set up a tense battle with France and especially Spain over its public spending plans for this year and next.
The EU warned Spain's deficit would reach 3.9% in 2016, way off the 3.0% of GDP limit for member states that Madrid said would be met this year.
Meanwhile, the EU said France would break a promise made to Brussels to meet the 3.0% threshold by 2017.
The Commission said the French deficit would reach 3.2% of output without new reforms. – Alex Pigman, AFP / Rappler.com