News ID: 214425
Published: 0715 GMT May 04, 2018

Brussels warns Trump’s trade policies pose threat to Europe

Brussels warns Trump’s trade policies pose threat to Europe
ft.com

The European Commission has insisted the eurozone was still set for robust economic growth despite a recent slowdown but warned of the threat to the region from US president Donald Trump’s trade policies.

In its latest economic projections for EU growth Brussels maintained its forecasts for the eurozone in 2018 and 2019 and insisted that a recent bad run of data was down to ‘temporary’ factors, ft.com wrote.

But the commission pointed to risks from a ‘dangerous nexus’ of economic policies in the US — where fiscal stimulus, higher Federal Reserve interest rates and the prospect of a trade war were likely to spook markets and European businesses.

“The materialization of these risks could throw the expansion off track in a European economy that has recently been more reliant on investment and exports,” The report said.

“Europe’s real economy would not remain immune to abrupt market corrections. The combination of a pro-cyclical fiscal stance and inward-looking trade policies presents a dangerous nexus.”

The intervention from Brussels comes at a time of tension with Washington over US import tariffs on steel and aluminum. Trump this week gave the EU a 30-day exemption from the tariffs, which the US imposed last month.

Pierre Moscovici, the EU’s economics chief, said Brussels would continue to lobby for permanent exemption.

“We believe protectionism is not the solution, it creates only problems,” he said.

Growth in the eurozone economy has moderated this year, slowing to its weakest pace in 18 months at the start of 2018. But the commission’s economists left their gross domestic product forecasts unchanged from February. Brussels still expects the 19-country bloc to expand at a pace of 2.3 percent in 2018 and two percent in 2019.

The UK is expected to be the worst-performing EU economy, matched only by Italy, as it approaches its exit from the EU next March. UK growth is forecast to decelerate to an annual pace of 1.5 percent this year and 1.2 percent in 2019.

Brussels’ forecasts for Britain are based on a ‘purely technical’ assumption of a status quo in trading relations between the UK and the rest of the EU after Brexit.

“Within Europe, risks related to the outcome of the Brexit negotiations remain,” said the commission.

After years of austerity, 2018 is set to be the first year when all 19 eurozone member states meet Brussels’ demand that their public spending deficits do not exceed three percent of GDP. France and Spain were the last two countries to bring their deficits below the ceiling, reducing them to 2.3 percent and 2.6 percent respectively in 2017.

Fixing the budget deficit has been a goal of President Emmanuel Macron’s year-old government in France in his attempt to win support for his eurozone reforms from German chancellor Angela Merkel.

Germany’s debt-to-GDP ratio will also come under the EU’s 60 percent ceiling in 2019, falling from 60.2 percent this year to 56.3 percent in 2019.

Moscovici said the German government had ‘some room to manoeuvre’ on spending after Berlin unveiled a budget with modest investment increases on Wednesday. Higher government spending “would be desirable not only for the country but for the eurozone as a whole,” he said.

The commission expects Italy’s economy to grow 1.5 percent this year before slowing in 2019. The eurozone’s third-largest economy — still with no government in place after March’s inconclusive election — has been blighted by slow growth and high public debt for decades. Brussels expects Italy’s debt pile to fall slightly below 130 percent of GDP in 2019.

“The biggest risk to this rosy outlook is protectionism, which must not become the new normal: That would only hurt those of our citizens we most need to protect,” said Moscovici.

   
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