Warning over 'new eurozone crisis'

A senior adviser to the German government fears another European crisis could be brewing.
A senior adviser to the German government fears another European financial crisis could be brewing. 
Dr Lars Feld, one of the German Council of Economic Experts, was one of the first last year to warn of a slowdown in Europe's largest economy. 
Dharshini David reports.
A senior adviser to the German government fears another European crisis could be brewing.
A senior adviser to the German government fears another European financial crisis could be brewing.

Sluggish Italy


Italy is being to forecast to have the weakest growth, at 0.1%, and the EC describes the Italian economy as having "sluggish" growth.

"In 2020, which has two additional working days, real GDP is forecast to expand by 0.7%. The forecast scenario is based on a no-policy-change assumption and does not incorporate the effects of hikes in indirect taxes envisaged for 2020 in the government plans," it says.

And on the deficit, the government deficit is expected to increase to 2.5% of GDP, mainly due to the slowdown in economic growth, and 3.5% in 2020.

More on growth forecasts

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In February the European Commission had been forecasting eurozone growth of 1.3% for this year - and has now cut this to 1.2%.

GDP across the EU is forecast to grow by 1.4%.

Italy's forecast was cut to 0.1% - from 0.2% previously.

But Pierre Moscovici, commissioner for Economic and Financial Affairs, Taxation and Customs, says the European economy will continue to grow in 2019 and 2020.

"Growth remains positive in all our member states and we continue to see good news on the jobs front, including rising wages. This means that the European economy is holding up in the face of less favourable global circumstances and persistent uncertainty.

"Nonetheless, we should stand ready to provide more support to the economy if needed, together with further growth-enhancing reforms. Above all, we must avoid a lapse into protectionism, which would only exacerbate the existing social and economic tensions in our societies.”

GDP growth next year is forecast to strengthen slightly to 1.6% in the EU and 1.5% in the euro area.

European growth forecasts

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The European Commission has published a quarterly economic forecast for the EU's 28 countries.

It says eurozone GDP would grow 1.2% this year - below the 1.9% registered in 2018.

"Downside risks to the outlook remain prominent. The risk of protectionist measures worldwide and the current slowdown in world GDP growth and trade could turn out to be more persistent than expected, particularly if growth in China disappoints.

"In Europe, risks include that of a ‘no-deal' Brexit and the possibility that temporary disruptions currently weighing on manufacturing could prove more enduring. There is also the risk that a rise in political uncertainty and less growth-friendly policies could result in a pull-back in private investment," the commission said.

Eurozone manufacturing struggles

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A string of surveys showing the health - or otherwise - of manufacturing across the eurozone has been published by IHS Markit.

A reading above 50 signals growth, below registers contraction.

In Gemany it was at 44.4 in April, up marginally from March's 80-month low.

The measure for French rose to 50.0 in April, which IHS Markit said signalled "a stabilisation in the goods-producing sector".

In Italy, PMI rose to 49.1 but remains in downturn, IHS Markit said.

Eurozone growth buoyed by services and construction

Ana Andrade, an analyst at The Economist Intelligence Unit, reminds us that the rosy Eurozone GDP figures bucked a trend set by other indicators.

"Euro area composite PMI had gone deep into contractionary territory in Q1," she says.

But, "the decline in manufacturing output and sentiment seems to have been more than offset by positive trends in the services and construction sector."

European unemployment fall

A revealing graph from Eurostat, showing EU28 unemployment at the lowest level since records of the current data set began, in 2000.


BreakingEurozone unemployment at post-crisis low

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The eurozone area's seasonally-adjusted unemployment rate was 7.7% in March 2019, down from 7.8% in February 2019 and from 8.5% in March 2018, according to Eurostat.

That is the lowest rate recorded since September 2008, the start of the global financial crisis.

The unemployment rate in the wider EU also dropped to 6.4% in March 2019, down from 6.5% in February 2019 and from 7.0% in March 2018.

That's the lowest level in 19 years.