Following rafts of disappointing data from the back-end of 2018 and into the new year, the European Commission has downgraded its growth forecasts for 2019 and 2020. It now expects the eurozone to grow by just 1.3% this year, down from a previous forecast of 1.9%. The 2020 forecasts have been cut to 1.6% from 1.7%.
The US-China trade war is being held up as one reason for the cuts, as well as general economic weakness across Europe. The eurozone’s largest economy, Germany, has had its growth forecasts cut to 1.1% from 1.8% and Italy’s GDP growth rate is expected to be even worse, with new predictions set at 0.2% for 2019, rather than the 1.2% previously put forward. Italy’s new populist coalition is being blamed, with rising financial costs taking their toll.
Somewhat unsurprisingly, given recent releases, December’s industrial production figures from Germany showed a contraction of 0.4% when growth of 0.7% had been expected by the markets. It is the fourth straight month of declines industrial output. The euro weakened sharply against sterling following the news, with the pound climbing way above the €1.14 mark.
Today we will see the balance of trade figures from Germany for December. Last time, the surplus came in at €20.5 billion so it will be interesting to see if this figure widens or contracts.
