Brussels, Oct 9 :The IMF downgraded its growth estimate for the eurozone Tuesday as trade tremors and Brexit fears took an unexpected toll on the economy in Europe.
Within the zone, export powerhouse Germany also saw its growth estimate knocked lower as investor sentiment sours in the face of US President Donald Trump’s protectionism.
“These more moderate growth numbers and the weaker incoming data that underpin them owe, in part, to a sharp rise in policy uncertainty,” said Maurice Obstfeld, the IMF’s chief economist.
“The possible failure of Brexit negotiations poses another risk,” he added.
The IMF’s latest World Economic Outlook predicted growth of 2.0 percent this year for the 19-country area that uses the euro single currency.
This was 0.2 points lower from its July estimate of 2.2 percent growth and a further slowdown was predicted for 2019, to 1.9 percent.
For Germany, growth was revised down to 1.9 percent in both 2018 and 2019 because of a slowdown in exports and industrial production, the IMF said.
The figures help explain Germany’s strong desire to end the trade war with the US, with Berlin the key backer of a truce negotiated between Trump and European Commission head Jean-Claude Juncker in July.
Trump has kept his promise of leading an aggressive trade policy, slapping punitive tariffs on partners he accuses of taking advantage of American workers.
Despite the trade headwinds, IMF insisted that growth in the eurozone was still solid, and “is projected to remain strong”.
“Healthy consumer spending and job creation” as well as a “supportive monetary policy” are expected to provide strong demand across most of Europe, even if at a lower pace, the IMF said.
The growth projection for Britain, which is not a member of the eurozone and will leave the European Union on March 29, has remained unchanged since July.
The British economy expected to grow 1.4 percent this year and 1.5 percent in 2019, some distance behind much of Europe, save heavily-indebted Italy.
– ‘Welcome strides’ –
Britain has struggled to keep pace with the eurozone as the uncertainties of Brexit weigh on the economy and has seen jobs from its key financial sector move to the EU.
The Italian economy will reach only middling growth in the coming years, with IMF slating an expansion of 1.2 percent in 2018 and just 1.0 percent in 2019.
This is way off the forecast of 1.5 percent growth for 2019 by Rome’s populist government, a prediction that has drawn ridicule from Brussels.
The IMF said France’s “welcome strides” in pushing through economic reforms could help growth down the line.
However, despite the effort the IMF downgraded France’s growth projection to 1.6 percent this year and next.
The IMF said inflation in the eurozone would pick up marginally in the next two years to 1.7 percent.
This was lower than the target 2.0 percent of the European Central Bank, but still an improvement from the near deflationary levels seen in recent years.