EU, UK Slashing Economic Growth Forecasts Amid Brexit Chaos
European Union officials have slashed their growth forecast for the 19 countries that use the euro, saying even the lower estimate was vulnerable to “large uncertainty” from slowing growth in China and weakening global trade.
The EU’s executive Commission cut the forecast for this year to 1.3 percent from 1.9 percent in their earlier forecast issued in the autumn. The eurozone probably grew 1.9 percent last year, slowing from a 10-year high of 2.4 percent in 2017.
Germany, Italy and the Netherlands all saw sizeable downgrades for their growth outlook.
A raft of risks is stalking the European and global economies, including China’s slowdown, a trade dispute between the U.S. and China that has added new import taxes, and the chance that Britain could leave the European Union in March in a chaotic fashion without approving a transition agreement. Other risks include sudden shifts in financial markets.
The Commission stressed Thursday that it simply couldn’t predict how bad any of the problem areas could turn out to be.
“A high level of uncertainty surrounds the economic outlook,” the forecast report said. “Trade tensions, which have been weighing on sentiment for some time, have alleviated somewhat but remain a concern.”
“China’s economy may be slowing more sharply than anticipated and global financial markets and many emerging markets are vulnerable to abrupt changes in risk sentiment and growth expectations.”
The Commission cut its 2020 forecast for the eurozone to 1.6 percent from 1.7 percent in the autumn forecast.
For the full 28-member European Union, growth forecasts were cut to 1.5 percent in 2019 from 1.9 percent, and to 1.7 percent in 2020 from 1.8 percent.
The Commission, the executive arm of the EU, publishes two comprehensive forecasts in spring and autumn and two updates in winter and summer.
UK Economy to Grow at Weakest Rate Since Financial Crisis
The British economy is set to grow this year by its weakest rate since the global financial crisis as uncertainties over Britain’s exit from the European Union ratchet higher, the Bank of England warned Thursday.
The central bank said the U.K. economy is slowing despite a modest boost from firms stockpiling as they prepare for potential disruption to trade if the country crashes out of the EU with no deal on future relations.
The Bank of England said that the Brexit uncertainties and a weaker global economy overall mean that British growth this year is likely to be 1.2 percent. That’s down sharply from the 1.7 percent predicted in November and below 2018’s 1.4 percent. It would make for the worst year in Britain since a 4.2 percent contraction in 2009.
At its regular policy meeting, the bank’s nine-member Monetary Policy Committee opted to keep its main interest rate at 0.75 percent and said its forecasts depend on what happens with Brexit.
“That outlook depended significantly on the nature of the EU withdrawal,” it said.
With 50 days to go until Britain is scheduled to leave the EU on March 29, there is no clarity on that front.
Last month, Prime Minister Theresa May saw her Brexit deal with the EU rejected overwhelmingly in Parliament. She’s in Brussels Thursday trying to eke out concessions from the EU, particularly on the controversial border provision in the agreement that is intended to make sure no hard border returns between EU member Ireland and Northern Ireland, which is part of the United Kingdom.
It’s unclear she will be able to get any concessions and fears have grown in recent weeks that Britain could crash out of the EU without a deal, a worst-case scenario that the Bank of England has previously said could see the British economy shrink by 8 percent within months and house prices collapse by around a third. The worry is that a ‘no-deal’ Brexit could lead to tariffs on exports to the EU and serious disruption to trade.
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