FRANKFURT—The European Union’s executive arm has trimmed its forecasts for eurozone economic growth this year and next as uncertainty over trade conflicts and weakness in the auto industry hold back output.
The European Commission lowered its outlook for growth this year in the 19 countries that use the euro currency to 1.2% from 1.3% in its previous forecast in February. The estimate for 2020 was trimmed to 1.5% from 1.6%.
It said that domestic demand was keeping Europe’s economic upswing going in its seventh year, thanks to a strong job market, muted inflation and low borrowing costs.
Europe’s economy depends heavily on trade and has felt the effects from slowing global commerce and the trade dispute between the U.S. and China. Auto companies are struggling with tougher emissions regulations in the U.S. and China, and with trade disputes and uncertainty. Germany’s BMW, for example, on Tuesday reported an operating loss for its automotive business.
Pierre Moscovici, the European commissioner for economic and financial affairs, taxation and customs, said at a news conference in Brussels that the eurozone economy faces risks from “possible policy mistakes.”
He said that there was “a worrying amount of uncertainty” about the outcome of trade talks. U.S. President Donald Trump is threatening to add more tariffs on Chinese goods as soon as this Friday barring a trade deal. Europe trades with both and would be sideswiped by a trade war.
A more detailed look at the forecasts shows that Germany, the eurozone’s largest economy, should be headed for a rebound next year, to 1.5% from 0.5% this year.
Italy is expected to be a weak spot, with growth next year of just 0.1%, and its budget deficit at 3.5% of annual GDP. That would breach the 3% limit set by fiscal rules aimed at supporting the shared euro currency—a development that could expose Italy and its populist government to pressure from the commission to reduce the deficit.