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European Commission Cuts Eurozone Growth Forecasts, EUR Sliding

European Commission Cuts Eurozone Growth Forecasts, EUR Sliding

Martin Essex, MSTA, Analyst

EUR price, news and analysis:

  • The European Commission has cut its forecast for Eurozone GDP growth this year to 1.3% from 1.9% and for next year to 1.6% from 1.7%.
  • It has also slashed its prediction for GDP growth in Italy this year to just 0.2% from the 1.2% previously predicted.
  • Its latest quarterly economic forecasts will likely ensure that the current downward pressure on the Euro persists.

European Commission gloomy on Eurozone growth

The European Commission has cut its forecasts for Eurozone GDP growth in 2019 and 2020, citing global trade tensions and a slowdown in the Chinese economy. It has also reduced its estimates of inflation, predicting a decline to 1.4% in 2019 from 1.7% in 2018.

That makes a tightening of monetary policy this year by the European Central Bank even less likely than previously, and that will likely ensure that the recent weakness of the Euro continues near-term.

EURUSD Price Chart, Five-Minute Timeframe (February 7, 2019)

Latest EURUSD price chart

Chart by IG (You can click on it for a larger image)

The Commission is particularly concerned about Italy, cutting its economic growth forecast for 2019 to 0.2% from its previous estimate of 1.2%. It blamed uncertainty over government policies and higher borrowing costs for pushing Italy into recession in the second half of last year.

Earlier Thursday, the European Central Bank also warned in its latest Economic Bulletin of slower Eurozone growth momentum ahead. The ECB said incoming data have “continued to be weaker than expected on account of softer external demand and some country and sector-specific factors. In particular, the persistence of uncertainties relating to geopolitical factors and the threat of protectionism is weighing on economic sentiment.

It added: “Overall, the risks surrounding the Euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility.

There was more gloom from Germany too, with news that German industrial output fell in December for the fourth successive month. It dropped by 0.4% month/month – better than the previous month’s revised fall of 1.3% but confounding expectations of a 0.8% increase.

Separately, the country’s DIHK Chambers of Industry and Commerce cut its 2019 growth forecast for Germany to 0.9% from 1.7%, pointing to growing headwinds from abroad for Europes biggest economy.

For more Euro news and analysis click here

And why DailyFX Analyst Nick Cawley expects the negative bias in EURUSD to continue is here

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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