The EU warned Thursday that a rise in trade protectionism exemplified by the Trump administration's tariffs was the biggest threat to eurozone growth despite solid economic forecasts for the next two years. Brussels unveiled the optimistic forecasts for 2018 and 2019 a day after official data showed growth slowed in the eurozone, fuelling fears that the recovery in Europe was losing steam after a strong 2017.
Sparking particular worry about the economy is an ongoing trade dispute with US President Donald Trump, who has threatened to impose major metals tariffs and provoke a trade war. "The biggest risk to this rosy outlook is protectionism, which must not become the new normal: that would only hurt those of our citizens we most need to protect," said EU Economic Affairs Commissioner Pierre Moscovici.
The commission, the EU's executive arm, said the 19-country single currency bloc would expand by a robust 2.3 percent in 2018, and by 2.0 percent in 2019, the same forecast as in February. But the commission warned that policies taken by Trump, including a massive tax cut, had created a real threat to Europe's economy. The tax cuts "and inward-looking trade policies present a dangerous nexus," to commission wrote in its forecast.
The Europeans and other allies have so far won a US exemption on the metals tariffs to June 1, but have prepared a long list of countermeasures in case Trump delivers on his threat. "An escalation of trade protectionism presents an unambiguously negative risk to the global economic outlook," the commission said. The commission also had a warning for Britain ahead of Brexit, predicting that the UK economy would grow by a sluggish 1.5 percent in 2018, well below the EU pace of 2.3 percent.
Britain's growth would slow even further to 1.2 percent in 2019, the year it is officially to divorce from the bloc. "Within Europe, risks related to the outcome of the Brexit negotiations remain," the EU added. In its forecast, the commission delivered welcome news to pro-reform French President Emmanuel Macron, with France officially in position to emerge from the deficit procedure after nearly a decade.
The EU said that after 2.6 percent in 2017, the French deficit will reach and an even lower 2.3 percent in 2018. France is indeed one of the last two countries in the eurozone, along with Spain, still concerned by the excessive deficit procedure, which can lead to sanctions and fines, even if this has never happened. During the worst of the eurozone crisis in 2011, 24 EU countries were simultaneously under the procedure, which when the public deficit exceeds three percent of GDP.
Powerhouse Germany once again blew through targets on public spending, though remained open to criticism that it overly privileges austerity which punishes the wider European economy. The German public budget is forecast to run a stunning surplus of 1.2 percent of GDP in 2018. The EU also said Thursday that inflation in the eurozone fell to 1.2 percent in April, a dip from 1.3 percent in March. That edges inflation further away from the European Central Bank's (ECB) target of near 2.0 percent.
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