How the European economy is raising fresh global growth fears

The Bank of England and the European Commission both offered downbeat outlooks on Thursday, reaffirming growing fears about the health of Europe’s economy. Although, the BOE left interest rates unchanged, as expected, it cut its forecast for 2019 gross domestic product to 1.2% versus its previous estimate of 1.7%, with its current level representing the weakest growth since 2009 when a crisis sparked by complex mortgage bonds cast a pall over the global financial system.

“Naturally, the uncertainty over Brexit means considerable uncertainty over the U.K. macro outlook, and therefore monetary policy,” said Bill Diviney, senior economist at ABN Amro. Both the BOE and Diviney still see a soft Brexit — where Britain leaves the European Union with a trade agreement in place — as the most likely scenario, but the U.K. economy seems destined to slow, notwithstanding any expectations of a trade resolution. The British pound GBPUSD, -0.1776% as well as the FTSE 100 Index UKX, +0.10%  didn’t initially absorb the news in stride. While sterling recovered after falling to a session low, the U.K. stock benchmark booked its worst decline so far this year, down 1.1%.

On Thursday, the European Commission cut its forecast for 2019 eurozone growth to 1.3% in 2019, compared with the 1.9% expected in November. Underlining its forecast was weaker-than-expected industrial and manufacturing data for the eurozone’s biggest economy Germany. Market participants also look at Italy’s high debt burden and a decision by the ECB to stop buying Italian bonds as part of its quantitative-easing program with caution, as this could lead to funding shortfalls if conditions worsen.

How the European economy is raising fresh global growth fears, MarketWatch, Feb 08