Sunday

24th Sep 2017

Trump's policies top list of risks for EU economy

  • "The US represents the single most important source of uncertainty," says EU economy commissioner Pierre Moscovici. (Photo: European Commission)

The "still-to-be-clarified intentions" of the Donald Trump administration in the US are the main risk to the EU economy, together with Brexit and upcoming elections in Europe, the European Commission has said.

In its Winter Economic Forecasts published on Monday (13 February), the EU executive said that the EU economy could grow by 1.8 percent in 2017 and 2018, with the eurozone growing by 1.6 percent in 2017 and 1.8 percent in 2018.

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Last November, it expected the EU economy to grow by 1.6 percent in 2017 and 1.8 percent in 2018, and the eurozone by 1.5 percent and 1.7 percent.

The forecasts have been revised upwards due to "better-than-expected performance in the second half of 2016 and a rather robust start into 2017."

For the first time in 10 years, the commission noted, all EU countries were expected to grow in 2017 as well as 2018.

But the commission warned that "exceptional risks" and a "particularly high uncertainty" surrouded its latest forecasts.

Less than two weeks after Trump took over as president of the United States, "the US represents the single most important source of uncertainty," EU economy commissioner Pierre Moscovici told journalists.

He admitted that Trump's expected stimulus package would boost global GDP "more than expected", but he pointed out that in the medium term, "shifting US position on trade policy may damage international trade" and that a "fast rise in interest rates and a stronger than expected dollar could hurt emerging economies".

He said that the EU needed to be "cautious" and had to "ensure a spirit of cooperation" with the US, which "remaind our partner, our friend, our ally".

He noted that there was "no doubt" on the Trump administration's "protectionist orientation", however.

He also said that the EU still needed to know the administration's positions on key areas such as banking regulation or cooperation on fiscal, tax and trade standards.

Moscovici added that Brexit "continues to pose a significant downside risk to the UK and to a lesser extent to overall European economy".

The commission admitted that the impact of the Brexit vote on British growth "has yet to be felt" and that "the economy has maintained momentum since the referendum."

But it noted that "private consumption has been supported by a reduction in saving" and warned that "private consumption growth is projected to weaken as growth in real disposable income declines".

As a consequence, the UK economy was expected to grow by 1.5 percent this year but only 1.2 percent next year.

The third major factor of risk this year is the series of elections in the Netherlands, France, Germany, Czech Republic, Bulgaria and most probably Italy.

Moscovici warned against the "absurd and dangerous" ambition from populist parties to leave the euro.

He said that such a move, proposed by France's National Front (FN) and Italy's Five Star Movement, would be a "source of impoverishment", with rising inflation and an "explosion" of interest rates and debt.

As FN leader Marine Le Pen is leading opinion polls ahead of April's presidential election, the French EU commissioner insisted that France leaving the euro would be "a tragedy for the eurozone and a disaster for France".

"As for France's exit from the EU, it would simply be in some way the end of the European project," he added.

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Europe's security architecture was already showing cracks well before Trump's arrival and requires urgent repair work whether he had won or not.

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An ongoing review of the the European Investment Bank's "complaints mechanism" could make the oversight branch less independent and less effective.

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