Europe Growth Revised Lower, Inflation to Rise

The European Commission has released new economic growth forecasts. Europe's major economies are expected to grow in the next two years—but at a slower rate than the commission had previously forecast.

The European Commission on Thursday cut its forecasts for the eurozone's economic growth this year, citing among the top causes for its revision trade tensions with the United States, as well as rising oil prices, which are expected to push the bloc's inflation higher, DW reported.

The slowdown of the eurozone economy is set to affect all major economies of the bloc, but is expected to hit Italy harder, as the country is forecast to record the lowest growth rate in Europe, matched only by Britain among all 28 EU countries.

The EU executive estimated the 19-country eurozone will grow by 2.1% this year, lower than the 2.3% gross domestic product increase it had forecast in its previous estimates released in May, and below the 2.4% growth recorded last year.

In 2019, the bloc's growth should slow to 2%, unchanged from the previous forecast.

Inflation to Rise

"The downward revision of GDP growth since May shows that an unfavorable external environment, such as growing trade tensions with the US, can dampen confidence and take a toll on economic expansion," Valdis Dombrovskis, EU Commission vice president for the project team Euro and Social Dialogue, said.

The negative impact of trade disputes on the European and global economy are expected to be much bigger in case of escalation, according to EU economics commissioner, Pierre Moscovici, who said: "Trade wars produce no winners, only casualties."

Rising oil prices have also contributed to the slowdown, the commission said, and are expected to push eurozone inflation up 1.7% this year and next, from the previously estimated 1.5% in 2018 and 1.6% in 2019.

Italy, Britain at Risk

Germany and France, the two largest economies of the eurozone, are expected to lose steam this year and next.

According to the commission's prognosis, Germany's GDP expansion will slow to 1.9% this year and will grow at the same rate in 2019. That's down from the previous estimates of 2.3% in 2018 and 2.1% in 2019. Germany's GDP grew 2.2% last year.

France's economy will grow 1.7% this year and next, much below the 2.2% growth it experienced last year. The new estimates are less optimistic than the 2% growth the commission had earlier forecast for this year, and also slower than the 1.8% growth previously forecast for 2019.

The slowest-growing economy of the bloc will remain Italy, which is expected to grow only 1.3% this year, less than the 1.5% estimated in May. The economy is forecast to further slow to 1.1% in 2019, farther down from the 1.5% growth recorded last year.

One of the causes cited by the commission for the revision was "reemerging concerns or uncertainty about economic policies," as Italy's new eurosceptic government has launched ambiguous messages on its future spending plans.

Only Britain is expected to match Italy in sluggishness of growth among all the 28 states of the European Union. It will grow 1.3% this year, according to the commission estimate, less than the previously estimated 1.5% expansion—a big drop from the 1.7% GDP rise recorded last year.

In 2019, when Britain is expected to quit the European Union, its economic expansion should slow further to 1.2%, the Commission predicted.

Latvia to Rise

According to the commission, Latvia's economic growth this year is projected at 3.3%. Dombrovskis said that Latvia's economic development was fostered by strong private consumption and increasing investments co-financed by the European Union funds.

On the other hand, decreasing volumes of non-resident deposits in the financial sector and declining amounts of transit freight in the transport sector have a negative impact on the economy, he said.

Unemployment continues to decrease in Latvia, while wages are growing fast. It is important that productivity also increases in order to ensure sustainable economic growth, the commission believes.

Meanwhile, Lithuania's economic growth this year is projected at 3.1% and Estonia's at 3.5%.