EU sees risks mounting in an economy already under pressure

By BLOOMBERG

BRUSSELS • Global trade tensions, Italy’s fiscal battles and US overheating pose risks to the euro-area economy, the European Commission warned as it lowered its forecast for the coming year.

While the list of threats in the commission’s report aren’t a surprise, they come amid mounting signs of a persistent slowdown in the euro-area.

The European Central Bank has said growth is merely stabilising at a more sustainable pace, but there’s a question of whether there’s worse to come.

The commission sees the 19-nation economy expanding 2.1% this year.

For 2019, it sees growth slowing to 1.9%, down from 2% forecast in July.

“Uncertainty and risks, both external and internal, are on the rise and start to take a toll on the pace of economic activity,” EU Commission VP for the Euro Valdis Dombrovskis said.

Some of the recent weakness is related to one-off factors such as a drop in German car production.

The Bundesbank said Europe’s largest economy may have stagnated in the third quarter, but HSBC said yesterday it may actually have contracted.

While growth will return this quarter, “the underlying trend is not anywhere near as strong as it was”, HSBC said.

The European Union executive arm warned that there is a “high degree of uncertainty” and there are many interconnected downside risks. On inflation, the commission raised its 2018 forecast to 1.8% and left its 2019 prediction at 1.6%.