EU warns of eurozone slowdown, Italy deficit jump

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The EU on Thursday said growth in the eurozone would slow in 2019 and beyond, citing global uncertainty and heightened trade tensions.

The European Commission also warned that Italy's deficit would balloon in 2019, due to a spending boost planned by Rome's populist government that blatantly defies EU rules on expenditure.

Fears of an economic slowdown in Europe have risen as markets fret over the possibility of a no-deal Brexit and trade tremors sparked by US President Donald Trump's protectionist policies.

In its latest forecasts, the European Commission expects growth in the currency bloc of 2.1 percent this year, followed by 1.9 percent in 2019, lower than the two percent predicted in its last assessment in July.

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Growth is expected to continue to decline in 2020 to 1.7 percent.

"Uncertainty and risks, both external and internal, are on the rise and are starting to take a toll on the pace of economic activity," said Valdis Dombrovskis, vice president of the European Commission.

The commission's forecasts land after official data last week showed that the economy in the 19-country single currency area rose just 0.2 percent from July to September this year.

The eurozone growth figure -- the smallest since the second quarter of 2014 -- was well below forecasts by analysts.

Other indicators are also pointing to weak growth in the coming quarters, raising doubts about plans by the European Central Bank (ECB) to wind down its massive stimulus to the European economy.

But ECB chief Mario Draghi has downplayed risks to the eurozone despite "weaker momentum" that he said would not undermine his confidence in growth.

Last month, the ECB confirmed plans to end "quantitative easing" (QE) or mass bond-buying at the end of December but will keep interest rates at historic lows until late next year.

Italy debt unchanged

Also weighing on minds is the budget row between Italy and the EU, which markets fear could embolden a return of the debt crisis.

According to Brussels, Italy's deficit will reach 2.9 percent of its Gross Domestic Product next year, well bigger than the 1.7 percent in its previous forecast.

Crucially, the EU believes Italy will only grow by a mere 1.2 percent in 2019 when Rome's 2019 budget is based on an estimate of annual growth of 1.5 percent.

In its Thursday forecast, the Commission believes that continued overspending means Italy's massive debt will remain unchanged at around 131 percent of GDP over the next two years.

Italian leaders insist a high debt and low growth rate are all the more reason to kickstart the economy through a spending spree.

Source(s): AFP