Eurozone's GDP expectation for 2020 drops

EU economic growth marred by external factors

Valdis Dombrovskis, the vice president for the euro and in charge of financial stability, said: "All EU economies are still set to grow this year and next, even if the robust growth in Central and Eastern Europe contrasts with the slowdown in Germany and Italy".

Further south, in France, INSEE confirmed that harmonised CPI rose at a 1.2% year-on-year clip, versus 0.9% in May.

"The resilience of our economies is being tested by persisting manufacturing weakness stemming from trade tensions and policy uncertainty".

Across the EU28, GDP growth was 2% in 2018 and was forecast to be 1.4% this year, and 1.6% (with or without the UK) in 2020.

"A regime of tiering (.) would have a very small impact on aggregate bank profitability and a questionable impact on credit conditions", the report said, adding that the costs of negative rates were likely outweighed by indirect positive effects.

Additionally, the rapid growth of exports to several relatively small destinations outside the European Union in the first four months of 2019 suggested a potentially high capacity for export reorientation. The GDP forecast for Bulgaria is also unchanged - 3.3% in 2019. and 3.4% for 2020. In particular, strong employment growth boosted household disposable income, resulting in record-high private consumption.

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The weaker economic outlook contributed to a downward revision of inflation expectations, the commission said, cutting its estimate to 1.3% for this year and next from the 1.4% it previously estimated for both years.

The commission underlined that economic issues between the USA and China may prolong downturn in global trade and manufacturing. Tensions in the Middle East also raise the potential for significant oil price increases.

"On the domestic side, given the purely technical assumption of status quo in terms of trading relations between the EU27 and the United Kingdom, a "no deal" Brexit remains a major source of risk", the forecast read. Inflation in Lithuania is projected at 2.2 percent this year and 2.1 percent in 2020.

This forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices with a cut-off date of 28 June.

Speaking in Frankfurt just before the account was published, European Central Bank board member Benoit Coeure said the pessimism implied such instruments should be taken as a pinch of salt and estimates by professional forecasters and households were more benign.

The European Commission's next economic forecast will be the autumn economic forecast in November 2019.

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