Euro zone entering long economic slowdown, EU executive warns

Brussels: The European Commission lowered its euro zone growth projections, warning that the 19-country currency area is facing a “protracted period of more subdued growth” due to external factors including US-China trade tensions.
The euro zone area is now expected to expand by 1.1 per cent this year — a downward revision of 0.1 percentage points — and by 1.2 per cent in 2020 — 0.2 points lower than previously projected, according to the European Union’s executive.
“So far, the European economy has shown resilience amid a less supportive external environment,” commission Vice-President Valdis Dombrovskis said in a statement.
“However, we could be facing troubled waters ahead: a period of high uncertainty related to trade conflicts, rising geopolitical tensions, persistent weakness in the manufacturing sector and Brexit,” he added.
Amid a global economic slowdown, Europe will depend more on domestic sectors, the commission noted. The bloc’s labour market has so far proven “surprisingly resilient,” it found, while inflation is expected to stay muted — putting pressure on new European Central Bank chief Christine Lagarde.
Dombrovskis urged countries with high debt levels — such as Italy — to whittle them down, while adding that “those member states that have fiscal space should use it now” — a message addressed in part to Germany, Europe’s largest economy.
Germany is expected to expand by 0.4 per cent this year and 1 per cent in 2020, below the euro zone average, presenting a drag on the bloc’s economy while smaller countries are expected to do a lot of the heavy lifting on growth.
Germany’s public finances are in good shape, with a budget surplus that is set to shrink. “If it starts getting a bit cold it might be necessary to turn up the heating,” EU Economy Commissioner Pierre Moscovici told reporters,while warning that this is not an invitation for other countries — such as Italy — to tear up the EU’s budget rules.
Italy, which has the euro zone’s second highest debt ratio, is under close scrutiny as it seeks to reinvigorate its sluggish economy while walking a tight line on EU fiscal rules. The commission is due to give its assessment of next year’s budget plans later this month.
According to Thursday’s figures, Italy’s deficit is expected to slide from 2.2 per cent of gross domestic product (GDP) this year to 2.7 per cent in 2021, with debt rising further above this year’s foreast136 per cent of GDP. Meanwhile, the country has the EU’s lowest growth rate, at 0.1 per cent in 2019.
Discussions with Rome about its 2020 budget cannot be compared with last year’s confrontations, when Italy’s populist government sought to flout EU rules, Moscovici said, while adding that his message to the country is unchanged. — dpa