EU leaves economic forecast unchanged despite risks

Commissioner for Economy, Paolo Gentiloni, during the presentation of the winter economic forecast on 13 February. [European Commission]

The European Commission kept unchanged its economic forecast for moderate eurozone growth for this year and 2021 despite the impact of looming risks, especially the coronavirus.

In an interim 2020-21 outlook for gross domestic product (GDP) growth and consumer inflation for the 19 countries sharing the euro, the Commission said on Thursday (13 February) growth in the eurozone would remain at 1.2% this year and next, the same as in 2019.

“The outlook for 2020 and 2021 is unchanged … as more positive developments are counterbalanced by negative events elsewhere,” the EU’s executive said.

Speaking to reporters on Thursday, the Commissioner for Economy, Paolo Gentiloni, said that the “European economy continues to show resilience” and the slow growth continues driven by the domestic demand.

Still, he warned of the various risks looming on the horizon, especially the coronavirus, “a key downside risk”.

However, the Commission did not factor in the virus in its update of the growth forecast, as EURACTIV first reported on Wednesday.

'Too early to assess' the economic impact of coronavirus, Commission says

The European Commission won’t consider the effects of the coronavirus outbreak in its updated growth forecast, expected on Thursday (13 February), saying it is “too early” to estimate the impact of the virus on the region’s output, EU sources told EURACTIV.

Gentiloni said that it was “too soon to evaluate the impact”, and it will depend on the duration of the outbreak.

He admitted, however, that the coronavirus will have an effect on the European output, given the size of the Chinese economy, around 16% of the global GDP. He recalled that the Commission would update its economic outlook in May.

In regard to inflation, it is likely to accelerate slightly, the Commission said, because of the likelihood of higher oil prices and the effect of higher wages passing through to core prices.

The Commission raised its forecast for consumer price growth to 1.3% in 2020 and 1.4% in 2021 from 1.2% and 1.3%, respectively, predicted last November.

The European Central Bank wants to keep inflation below, but close to 2% over the medium term, and has been buying government bonds on the secondary market to inject more cash into the banking system and stimulate lending.

“Still, domestic price pressures are expected to build up only slowly as firms are likely to continue tolerating lower profit margins,” the Commission said.

The EU executive said that while the first phase of a trade deal between the United States and China helped reduce risks to some extent, the spread of the coronavirus added more uncertainty to the economic outlook.

“The baseline assumption is that the outbreak peaks in the first quarter, with relatively limited global spillovers. The duration of the outbreak, and of the containment measures enacted, is a key downside risk,” the Commission said.

“The longer it lasts, the higher the likelihood of knock-on effects on economic sentiment and global financing conditions,” it said.

The Commission also said that while trade relations between the EU and the United Kingdom, which left the bloc on 31 January, were governed by the transition period agreement until the end of the year, there was “considerable uncertainty” as to what trade deal, if any, would be in place from the start of 2021.

Among the other risks, Gentiloni also mentioned the policy uncertainty in member states,  and geopolitical risks, especially in Latin America and the Middle East.

As economy slows, Commission tells member states to be ready for 'all scenarios'

EU member states should be prepared for “all scenarios” as the European economy continues to decelerate, and is not expected to pick up in the near future, the European Commission warned in its latest economic forecast published on Thursday (7 November).

[Edited by Zoran Radosavljevic]

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