Market Overview

Global trade war to hold back modest euro zone growth: poll

The euro zone economy will muddle through this year and next with steady but modest growth in a slowdown from 2017, according to economists in a Reuters poll, which shows a majority expecting a brewing U.S.-led trade war to hold back growth.

The currency bloc grew at its fastest pace since the 2007-2008 financial crisis last year, but lost momentum in early 2018 and the coming year’s outlook remains tepid, with inflation slowing down slightly and veering away from target.

Still, the Reuters poll of 90 economists taken between Aug. 13 and 21 shows that the European Central Bank is on track to shutter its asset purchase program by December after spending a whopping 2.6 trillion euros on bonds to boost price pressure.

The main risk to the outlook remains the United States and China’s tit-for-tat trade tariffs and threats that there are more in store.

Median growth forecasts for early next year were downgraded from a July poll. Quarter-on-quarter growth was expected at 0.4-0.5 percent every quarter this year and next. Forecasts ranged from 0.3 to 0.6 percent.

The economy should expand 2.1 percent this year after 2.7 percent in 2017, slowing down further to 1.8 percent in 2019. Inflation touched 2 percent in June, driven by rising energy prices, and was forecast to average 1.7 percent for the next two years, slightly up from July predictions for 1.6 percent this year and next.

The poll showed the ECB will hike its deposit rate by 15 basis points to -0.25 percent in the third quarter of next year and the refinancing rate to 0.25 percent from zero in the fourth quarter of 2019.

Global trade war to hold back modest euro zone growth: poll, Reuters, Aug 22
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