What Happened: The European Commission has warned of an economic deceleration in Europe over the next two years due to global trade tensions and a slowdown in manufacturing, according to the fall economic forecast it released Nov. 6. The commission lowered its growth expectations for the eurozone to 1.1 percent for 2019, down from 1.9 percent in 2018, while projecting growth of 1.2 percent in 2020 and 2021.
Why It Matters: The commission's report is the latest indicator of a slowdown across the eurozone, although a widespread crisis remains unlikely. The report projects Italy to be the worst-performing economy in the currency bloc, at just 0.1 percent expansion in 2019, raising further doubts over the sustainability of Rome's fiscal policies and debt levels. Although the commission forecasts low growth for Germany, it doesn't expect the country to go into recession in 2020.
Background: While the commission's report downgraded most of its economic projections for 2019 and expects lower economic growth for this year, its expectations of a modest rebound in 2020 suggest that a continentwide recession remains unlikely. Brussels will likely use low growth to justify a more flexible application of EU debt and deficit rules. At the same time, a slowing expansion will create challenges for the new head of the European Central Bank as the institution appears to be running out of tools to boost inflation and growth in the eurozone.
- Money Alone Won't Solve Germany's Economic Problems (Sept. 13, 2019)
- Why a Global Economic Downshift, No Matter How Small, Matters (Jan. 24, 2019)
- After a Decade of Calm, Bigger Waves May Batter the Markets (Feb. 7, 2018)