EU Poised to Beat 2017 Economic Growth Forecasts

The European Union said Thursday that it is set to exceed economic growth expectations for 2017, with strong private consumption and the global recovery propelling the eurozone’s fastest pace of expansion in a decade.

Gross domestic product in the 19-member eurozone will grow by 2.2% in 2017, the EU said, raising its forecast from 1.7% in May. The 28-member bloc’s GDP, meanwhile, is seen expanding by 2.3% this year, up from the 1.9% previously forecast.

The improving outlook reflects a broader global economic upswing that is stoking investments by EU companies as political and economic uncertainties dim. Centrist, pro-European governments kept power in Germany, France and the Netherlands in the wake of a busy election cycle this year, while the European Central Bank opted to maintain its accommodative monetary policies going forward.

“After five years of moderate recovery, European growth has now accelerated. We see good news on many fronts, with more jobs being created, rising investment and strengthening public finances,” said Pierre Moscovici, the European commissioner for economic and financial affairs, taxation and customs.

Despite the upbeat projections, the EU said that it still faces labor, wage and inflationary pressures that are compounded by risks posed by the U.K.’s exit from the bloc and by U.S. President Donald Trump’s protectionist economic policies.

The threats were evident in the bloc’s forecasts for 2018 and 2019, when economic growth is expected to slow down. The eurozone is seen expanding to 2.1% in 2018–still up from a previous expectation of 1.8%–with the growth rate dipping to 1.9% in 2019, when Britain will leave the EU.

Eurozone inflation is also expected to remain broadly flat at 1.5% in 2017, down from a 1.6% forecast previously, decelerating to 1.4% next year before rising marginally to 1.6% in 2019.

Unemployment across the currency bloc is seen dropping faster than expected in May, dipping to 9.1% by year’s end and then to 8.5% in 2018 and then to 7.9% the following year. Previously, the EU had expected 9.4% unemployment in 2017 and 8.9% in 2018.

As economic growth gathers pace, eurozone economies are tipped to cut their budget deficits faster than previously anticipated, the EU said. Members of the common-currency area are seen having an average deficit of 1.1% of GDP in 2017, down from 1.4% in the earlier forecast. That gap is expected to decline to 0.9% next year, down from the previous estimate of 1.3%, and falling further to 0.8% in 2019.

“The economies of all member states are expanding and their labor markets improving, but wages are rising only slowly,” the EU said, citing slack employment conditions. “GDP growth and inflation are therefore still dependent on policy support.
Source: Dow Jones

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