European Union raises growth forecast for eurozone to decade high

The report suggests a deal could be completed by November 2018
The report suggests a deal could be completed by November 2018
Author

10 November, 2017

The 19-country eurozone will grow by 2.2 percent in 2017, its fastest pace in a decade, the European Commission said in its autumn economic forecasts.

The EU has increased its 2017 growth forecast for Turkey by more than two percentage points, according to the European Economic Forecast Autumn report published on Thursday.

The Turkish economy is also expected to grow 4.1 percent in 2019.

"Real GDP growth is expected at 4.2 percent in 2017 and 3.8 percent in 2018, before decelerating to 3.4 percent in 2018, with a growing positive demand gap, driven by domestic demand".

Even before the Brexit separation is sealed, United Kingdom growth is forecast to slow to 1.5% in 2017, with the prediction cut from a previous 1.8%.

Political anxiety has also decreased across Europe - as Germany, France and the Netherlands re-elected centrist, pro-EU governments this year.

The EU raised its 2017 Spanish GDP growth forecast to 3.1% from 2.8% while bumping its outlook for next year to 2.5% from 2.4% previously.

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"Economic growth in the United Kingdom has been slowing since the start of the year, as higher consumer prices constrained private consumption growth", the commission report said.

With the latter in mind, the European Commission revised its growth forecasts for the United Kingdom, cutting projected 2017 growth to 1.5 percent from 1.8 percent and forecasting a further slowing down in 2018 and 2019 respectively. The unemployment rate is projected to fall to 6.4% in 2017 and to gradually reach 5.7% in 2019.The Commission's assessment of the general government budget coincides with the fiscal policy objectives set out in the three-year budgetary projections 2018-2020, namely: a balanced budget in 2017 and 2018 and a surplus in 2019. Investment is also picking up amid favorable financing conditions and considerably brightened economic sentiment as uncertainty has faded, suggesting that the European citizens move forward, leaving the economic crisis in the past, as the economies of all EU-member states are expanding and their labour markets improving, but wages are rising only slowly.

Private consumption is expected to recover after a weak performance in the first half of 2017, mainly because more residents were in employment.

"While market reactions to recent events in Catalonia have remained contained, the risk exists that future developments could have an impact on economic growth", the Commission noted in its reports, adding that the size of the impact "cannot be anticipated at this stage". Public finances remain on track to meet the primary surplus targets agreed under the ESM programme.

Wages are expected to improve as the increase in labour supply slows down. Previously, the European Union had expected 9.4% unemployment this year and 8.9% in 2018.

"Investment in construction is projected to contribute substantially to growth in domestic demand, with the strong momentum in residential property investment in 2016 expected to continue in the medium term, supported by government policies", the commission says.


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