Citing U.S.-China trade and Brexit, EU downgrades fall economic forecast

The trade dispute between the United States and China and Britain’s failure to strike a deal to leave the European Union are two major factors that led the bloc to downgrade its fall economic forecast Thursday.

The European Commission’s updated forecast hailed a seventh straight year of growth and continued expansion into 2020 and 2021 — but warned the “external environment has become much less supportive” and uncertainty remains high.

The commission now expects the EU economy to expand by 1.1 percent for 2019, and a slight increase to 1.2 percent growth by 2020 and 2021. The new projection is down from an outlook this summer that forecast 1.2 percent growth for this year and 1.4 percent for next.

“So far, the European economy has shown resilience amid a less supportive external environment: economic growth has continued, job creation has been robust, and domestic demand strong,” Valdis Dombrovskis, vice president for the Euro and Social Dialogue, said in a statement with Thursday’s revised forecast.

“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.”

Washington and Beijing plan on signing “phase one” of a new trade deal this month, but a spate of details remain to be worked out. Beijing said Thursday it has agreed to lift tariffs on U.S.-made products and expects the Trump administration to do the same.

In London, Prime Minister Boris Johnson is hoping new elections Dec. 12 will be the catalyst to pass his agreement with the EU to depart at the end of January. Parliament dissolved Wednesday to formally begin the campaigning period.

Christine Lagarde, the European Central Bank’s new president, has asked eurozone members with low debt levels and budget surpluses to increase public spending to stimulate the economy. Before leaving, outgoing president, Mario Draghi restarted the bank’s bond purchases as the EU cut annual consumer-price index increases from 1.3 percent to 1.2 percent this year.

“All EU economies are set to continue expanding over the coming two years, in spite of increasingly strong headwinds,” Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs, said.

“The fundamentals of the EU economy are robust. After six years of growth, unemployment in the EU is at its lowest since the turn of the century and the aggregate deficit below 1 percent of GDP. But the challenging road ahead leaves no room for complacency.”

ByClyde Hughes