Euro zone sees economic outlook worsening amid uncertain US trade policy

EU economic growth marred by external factors

Brussels now expects gross domestic product (GDP) in the single currency bloc to increase by 1.4 percent in 2020, down from 1.5 percent in its previous forecast in May.

The European Commission's summer forecast for the EU economy, released on July 10, kept the growth estimate for the European Union as a whole and the euro zone, while re-iterating its forecast for Bulgaria at 3.3 per cent this year and 3.4 per cent in 2020.

Valdis Dombrovskis, vice president for the euro and social dialogue, who is also in charge of financial stability, said: "The resilience of our economies is being tested by persisting manufacturing weakness stemming from trade tensions and policy uncertainty".

The weaker economic outlook contributed to a downward revision of inflation expectations, the commission said, cutting its estimate to 1.3% for this year and next from the 1.4% it previously estimated for both years. Domestic demand, in particular household consumption, continues to be a driving force for economic growth in Europe thanks to the continuing increase in the labor market.

France's economy will expand 1.3 per cent this year and 1.4 per cent in 2020, the commission estimated, leaving unchanged its forecast for this year but lowering the estimate for the next, earlier seen at 1.5 per cent. Domestically, Brexit remains a major source of uncertainty, noted the forecast. It also revised down its estimate for next year's growth, which is now seen at 1.4 per cent instead of the 1.5 per cent forecast in May.

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It warned that the "extended economic confrontation between the USA and China, together with elevated uncertainty around U.S. trade policy could prolong the current downturn in global trade and manufacturing and affect other regions and sectors".

The commission underlined that economic issues between the US and China may prolong downturn in global trade and manufacturing.

In addition to Brexit, there were other significant risks surrounding near-term growth drivers and economic momentum in the euro area. The expected rates of inflation for 2019 and 2020 are 1.8% and 1.9% respectively.

The Commission publishes four economic forecasts each year.

The European Commission's next economic forecast will be the autumn economic forecast in November 2019.

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