Eurozone economic growth set to slow

Weakness in Europe’s manufacturing could spread to other services

Eurozone economic growth is forecast to slow more than expected, amid “high uncertainty” and a weakness in trade and manufacturing.

A report by the International Monetary Fund (IMF) revealed the eurozone would grow by 1.2 per cent this year, which is down from an estimate of 1.3 per cent in April. For 2020 and 2021, it expects growth of 1.4 per cent, down from a previous forecast of 1.5 per cent for both years.

The report said: “Economic activity in Europe has slowed on the back of weakness in trade and manufacturing. For most of the region, the slowdown remains externally driven.”

"The weakness in trade and manufacturing could spread to other sectors – notably services – faster and to a greater extent than currently envisaged.”

The slowdown can largely be attributed to weak growth in the eurozone’s two largest economies. Leading the 19-strong group is Germany, which the IMF downgraded from 0.8 per cent in April to 0.5 per cent in October.

France is now expected to grow by 1.2 per cent this year, as opposed to the 1.3 per cent previously forecast, despite its economy performing 0.1 per cent above market estimates.

Brexit is also a contributing factor. Even if a deal goes ahead by the end of January, the IMF said Britain’s economy would grow by 1.2 per cent this year and 1.4 per cent the next. Growth was 1.4 per cent in 2018.

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"Amid high uncertainty, risks remain to the downside, with a no-deal Brexit the key risk in the near term, which could have a sizeable negative impact on the economies in the region," the IMF said.

“Other risks stem from abrupt declines in risk appetite, financial vulnerabilities, the re-emergence of deflationary pressures in advanced economies, and geopolitics."

It’s not all doom and gloom, however as Eurozone retail sales accelerated more than expected year-on-year in September.

According to according to estimates from Eurostat retail sales rose 0.1 per cent month-on-month for a 3.1 per cent year-on-year gain, up from 2.7 per cent in August.

The European Union’s statistics office revealed month-on-month retail sales of food, drinks and tobacco fell 0.4 per cent, but rose 0.1 per cent for non-food products. In year-on-year terms, sales of food rose 1.3 per cent, while non-food products rose 4.6 per cent, which is 0.4 per cent increase on the previous month.

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