March 4, 2020 / 7:28 PM / a month ago

Coronavirus likely to dampen euro zone growth in 2020: EU executive

BRUSSELS (Reuters) - Euro zone growth is likely to be slower in 2020 than the 1.2% forecast only in mid-February because of the negative effects of the coronavirus, the European Commission said in a preliminary assessment.

The document, prepared for a teleconference of EU finance ministers, did not give a new growth forecast for the 19 countries sharing the euro, noting the many uncertainties.

“As the epidemic is now spreading outside China, the impact on the global and EU economy could potentially be significant, and in any case more so than assumed in the Commission Winter Forecast,” the EU executive arm said.

In its so-called winter forecast on Feb. 13, the commission said it expected euro zone growth at 1.2% this year and next, but stressed it was too early to estimate the effects of the epidemic.

“Given the sluggish state of the global economy and many countries and sectors highly leveraged, the financial market reaction could exacerbate consequences for the real economy well beyond the direct impact of the epidemic,” the note said.

The commission said a more precise economic assessment depended on epidemiological facts, the severity and duration of containment measures, work days lost and other issues.

“Under certain scenarios, indirect effects via sentiment and financial market reactions are potentially significant in the near term. Also, the type of policy responses matter,” it said.

The U.S. Fed and Canada’s central bank have already announced rate cuts and EU finance ministers said they stood ready to take policy action.

EU ministers also said EU budget rules allowed them flexibility to cater for “unusual events outside the control of government” after Italy, hard hit by a coronavirus outbreak in its industrial north, announced a fiscal stimulus package.

As an example of a possible scenario for the euro zone, the assessment quoted a forecast of the Organization for Economic Cooperation and Development from Monday which saw euro zone growth slowing to 0.8% in 2020, from a 1.1% growth forecast made in November.

Writing by Jan Strupczewski; editing by Nick Macfie

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