Birds fly over the river Main as the sun sets in Frankfurt, Germany, July 7, 2018. (Michael Probst / AP)
BRUSSELS - The European Commission downgraded its growth forecast for the eurozone this year due to external factors such as US trade uncertainty and high oil prices, the commission said on Thursday.
The commission's summer interim forecast issued on Thursday showed that growth in the eurozone this year is set to be 2.1 percent, 0.2 percentage point lower than that had been projected in the spring.
"The slight downward revision compared to the spring reflects the impact on confidence of trade tensions and policy uncertainty, as well as rising energy prices," said Pierre Moscovici, European Commissioner for Economic and Financial Affairs, Taxation and Customs.
It is clear that further escalating trade conflicts would negatively affect welfare in all countries involved
Pierre Moscovici, European Commissioner for Economic and Financial Affairs, Taxation and Customs
Growth momentum is expected to strengthen somewhat in the second half of this year, as labor market conditions improve, household debt declines, consumer confidence remains high and monetary policy remains supportive, according to the report.
"The risks to this forecast are mainly on the external side and concern three elements: a possible further escalation of trade disputes driven by the US; the potentially disruptive effect of tighter financial conditions and higher financial-market volatility that could impact financing conditions also in the euro area; and increased imbalances stemming from the highly pro-cyclical fiscal policy in the US," said Moscovici.
Moscovici added the forecast is based on maintaining the status quo and further escalating trade conflicts could still lower growth this year.
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"It is clear that further escalating trade conflicts would negatively affect welfare in all countries involved. Protectionism is good for no one, trade wars bad for everyone and they produce no winners, but only casualties and loses for our economies, that means also for our citizens," he said.
The Commission report said global trade policy uncertainty could especially affect the German economy strongly for it's a highly open economy.
And the real GDP is now expected to increase by 1.9 percent in 2018 and 2019, a downward revision compared to the spring.
Inflation this year is forecast to average 1.9 percent in the EU and 1.7 percent in the eurozone, driven by oil prices.
Overall, real GDP is now expected to increase by 1.9 percent in 2018 and 2019, a downward revision compared to the spring. Risks are tilted to the downside. Global trade policy uncertainty could affect the highly open German economy more strongly.
The Commission expected a 2 percent growth rate in the eurozone in 2019, the same as the forecast in Spring.
"We expect a slight slowdown in 2019, as expected last spring; supply constraints would gradually weigh on the pace of growth, external demand would slow down, and Brexit uncertainty will also weigh on confidence," said Moscovici.