Europe's growth prospects over the next two years are imperiled due to a more turbulent external environment worsened by trade tensions and tighter financial conditions, according to the International Monetary Fund (IMF).
The IMF's latest regional outlook report downgraded its growth forecasts for Europe for 2018 and 2019. It said the external environment has become less supportive and is expected to soften further in 2019 because of slowing global demand, trade tensions, and higher energy prices.
It noted that tighter financial conditions in vulnerable emerging market economies and maturing business cycles are also weighing on growth. Because of this, growth is projected to decline from 2.8 percent in 2017 to 2.3 percent in 2018 and 1.9 percent in 2019.
The IMF World Economic Outlook report also cut global growth forecasts, estimating 3.7 percent growth in 2018 and 2019, or 0.2 percentage points lower than an earlier forecast.
On the other hand, growth in most European countries is expected to remain above potential. Driving this positive growth is domestic demand, which is being bolstered by stronger employment and wages.
This latest IMF forecast is a downgrade from its last regional outlook for Europe released in May. The previous report predicted "growth to stay strong," reaching 2.6 percent in 2018 and 2.2 percent in 2019.
Contributing to the less encouraging forecast are the tightening of global financial conditions; political upheavals in Europe; slow progress on structural reforms and the never-ending Brexit negotiations.
The IMF said that in the short term, escalating trade tensions and a sharp tightening in global financial conditions could undermine investment and weigh on growth. Medium-term risks arise from delayed fiscal adjustment and structural reforms, rising inequality, demographic challenges, and declining trust in mainstream policies.
IMF said a "no-deal" Brexit will lead to high trade and non-trade barriers between the U.K. and the rest of the European Union (EU) with negative consequences for growth. A "no-deal" Brexit means the UK will leave the EU without a trade deal. The UK will then revert to WTO rules.
For its part, the European Commission (EC) reported growth in the bloc might stall due to "many interconnected downside risks." It forecast growth of 1.9 percent in 2019 (similar to the IMF's) and 1.7 percent in 2020. Europe is expected to see growth moderate along with most major economies, said the EC.
Europe also has to contend with rabble-rousing right-wing political movements, apart from being battered by Trump's trade war and tensions with a revanchist Russia.
