The European commission has cut its growth forecasts for the UK and Europe this year, blaming the threat of a trade war with the US, which it warned would produce “no winners, only casualties”.
Britain will slump to the bottom of the EU league table for growth in 2018, the commission said, as it is “particularly exposed” to an escalation of trade tensions and while Brexit uncertainty persists.
Growth in the EU is now expected to be 2.1% in 2018, compared with 2.3% in the commission’s spring forecast and 2.4% in 2017. Its forecast for growth in 2019 was unchanged at 2%.
Explaining the weaker outlook for growth this year, the commission said rising trade tensions with the US were dampening confidence and would limit economic expansion.
Pierre Moscovici, European commissioner for economic and financial affairs, taxation and customs, said growth might turn out lower than the forecasts should tensions escalate further.
“The slight downward revision compared to the spring reflects the impact on confidence of trade tensions and policy uncertainty, as well as rising energy prices.
“Our forecast is for a continued expansion in 2018 and 2019, although a further escalation of protectionist measures is a clear downside risk. Trade wars produce no winners, only casualties.”
The EU downgraded its forecast for UK growth in 2018 to 1.3% from an earlier forecast of 1.5%. That puts Britain joint bottom of the EU league table with Italy.
The commission expects UK growth to drop to 1.2% in 2019, unchanged from its spring forecast. Only growth in Italy is expected to be weaker, at 1.1%.
Growth forecasts were downgraded for all major economies in the EU in 2018. The German economy is expected to grow by 1.9% this year, down from the spring forecast of 2.3%.
The growth forecast for France was cut to 1.7% from 2%, and to 2.8% from 2.9% for Spain.
The commission said there were a number of risks facing the UK economy, such as weak consumer confidence and business investment as uncertainty over the future trading relationship with the EU remained. It said risks to the 2018 forecast were tilted to the downside.
“Domestically, downside risks relate to the possibility that the household saving rate rises faster than anticipated, leading to lower consumption growth.
“While on the external side, as an open economy, the UK is particularly exposed to an escalation in trade protectionist measures that could further inhibit export growth.”
The commission’s forecast for UK growth in 2019 was based on the assumption of the status quo in terms of trading relations between the EU and the UK, in the absence of detail on what the relationship would look like. The UK is due to leave the EU on 29 March 2019.
Photograph: Evan Vucci/AP
Among EU countries in 2017, Germany was the biggest exporter of goods to the US, followed by the UK, Italy, France and Ireland.
Donald Trump has already imposed tariffs of 25% on steel and 10% on aluminium imported from the EU, citing “national security” reasons.
In retaliation, the EU has announced tariffs on a wide variety of imported US products, including whiskey, Levi’s jeans and Harley-Davidson motorcycles.
In response, the US president threatened to impose 20% tariffs on cars imported from Europe, which would be particularly damaging for the German automotive industry.
The commission warned an escalation of trade tension would disrupt the current “upswing” in the global economy and trigger bouts of financial market volatility.
It said other risks to economic growth in Europe included political uncertainty in a number of EU countries, such as the outcome of Brexit negotiations, as well as political tensions outside Europe.