European Union Cuts Economic-Growth Forecast Amid Global Tensions

WASHINGTON (Los Angeles Times/MCT) -

The European Union on Tuesday cut its economic-growth forecasts for the region, saying rising geopolitical risks in Ukraine and the Middle East and a broader global slowdown have eroded business and consumer confidence since the spring.

The downgraded outlook is bad news for the U.S. economy, because Europe is a major market for American exports.

Europe’s troubles come amid weaker economic growth elsewhere in the world, which helped drive up the U.S. trade deficit in September.

The Commerce Department reported Tuesday that U.S. exports dropped by about $3 billion, or 1.5 percent, from August, to $195.6 billion.

The decrease caused the nation’s trade deficit to rise by 7.6 percent to $43 billion, the largest gap since May.

The economy in the 18-nation eurozone, the area that uses the euro currency, is forecast to expand just 0.8 percent this year and 1.1 percent next year, according to the latest estimate from the European Commission, the region’s executive body.

Those figures are down from a spring forecast of 1.2 percent growth this year and 1.7 percent next year.

The outlook is better for the broader 28-nation European Union, which includes the United Kingdom, but still was downgraded from the spring.

The EU economy is expected to expand 1.3 percent this year and 1.5 percent next year. The spring forecast called for 1.6 percent growth this year and 2 percent next year.

“The economic and employment situation is not improving fast enough,” said Jyrki Katainen, the commission’s vice president for jobs, growth, investment and competitiveness.

In comparison, the U.S. economy grew 3.5 percent in the third quarter.

The latest forecast from the Federal Reserve calls for annual growth of 2 percent to 2.2 percent this year and 2.6 percent to 3 percent next year.

Europe has had more difficulty than the U.S. in recovering from the Great Recession.

A number of EU nations fell back into recession from 2011 into early 2013, and the region’s economy has struggled to regain strength since then.

Tuesday’s report said that the recovery from that second recession “remains fragile” and that the economic momentum in many member states is “still weak.”

“Confidence is lower than in spring, reflecting increasing geopolitical risks and less favorable world economic prospects,” the report said. “Despite favorable financial conditions, the economic recovery in 2015 will be slow.”

Inflation remains low.

The report forecast inflation would rise 0.6 percent this year and 1 percent next year, well below the 2 percent annual target of the European Central Bank.

In September, the European Central Bank cut interest rates and announced new stimulus plans. Tuesday’s report has led to speculation that the bank could take additional steps to try to boost growth.

Katainen said the European Commission would propose that member nations spend about $376 billion on an investment plan to “kick-start and sustain economic recovery.”