EU slashes eurozone growth forecast as Germany cools

[BRUSSELS] The European Commission sharply cut its eurozone growth forecast for 2019 on Thursday as an unexpected slowdown in Germany and protests in France weigh on the economy in Europe.

The EU also cut Italy's growth rate to a five-year low, a situation that risks reopening bitter differences between Brussels and Rome about the government's spending plans this year.

The commission, the EU's executive arm, is now expecting growth of 1.3 per cent in the eurozone this year, a significant cut from 1.9 per cent predicted in November.

It said the full European Union would grow by 1.5 pe rcent instead of the earlier 1.9 per cent.

The health of the German economy is fast emerging as a worry for the EU as slumping demand for foreign cars in China takes a toll on Europe's export powerhouse.

The commission said Europe is facing international headwinds that have now taken the steam out of a post-crisis recovery in the eurozone.

The slowdown "reflects external factors, such as trade tensions and the slowdown in emerging markets, notably in China," said European Commission Vice President Valdis Dombrovskis.

"The possibility of a disruptive Brexit creates additional uncertainty," he added.

Another problem is Italy, which the commission said would grow by a paltry 0.2 per cent this year, still better than a recession, but a huge cut from the 1.2 per cent forecast late last year.

Slower growth spells big trouble for populist-led Italy, where huge amounts of government money are swallowed up each year to help pay down about two trillion euros in public debt.

Rome's coalition government of the anti-establishment Five Star Movement (M5S) and the League party was already forced to water down its ambitious budget in December to avoid being punished by the EU Commission and financial markets.

The latest growth forecast may force Italy to again review its spending plans for 2019 in order to satisfy Brussels and assuage investors.

"The commission will continue to monitor closely the situation in Italy," said EU Economic Affairs Commissioner Pierre Moscovici, who handles the fraught negotiations with Rome.

Mr Moscovici, a former French finance minister, warned that France was also caught in the cooldown, especially after a wave of "yellow jacket" protests hit the country in December.

In France, the European executive now expects growth of 1.3 per cent in 2019, compared to 1.6 per cent in its autumn forecasts.

AFP