Eurozone Growth Set to Accelerate as Threats Subside

Ann Santiago
November 10, 2017

The 19-member eurozone is expected to grow at its fastest pace in a decade this year, with gross domestic product growth beating forecasts and projected to reach 2.2%, well outpacing the United Kingdom, according to a European Commission report released on Thursday.

The EU economy as a whole is also forecast to beat expectations and reach robust growth rates of 2.3 pct this year (up from growth forecasts of 1.9 pct in the spring). The bloc also cut its United Kingdom 2017 economic growth forecast to 1.5% from 1.8% while keeping it steady at 1.3% for next year.

The Spanish deficit could fall to 3.1 percent of GDP this year, down from 4.5 percent in 2016, and the Commission expects it will continue to shrink to 2.4 percent in 2018 and 1.7 percent in 2019.

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

EU commissioner Pierre Moscovici said: "After five years of moderate recovery, European growth has now accelerated".

The UK's growth will lag behind virtually every other major European nation for the next handful of years, as the booming eurozone overtakes Britain's Brexit stricken economy, according to estimates from the European Commission.

Greece is another country where the coming months will be crucial, with the end of the current bailout programme next summer.

It also cautioned that developments in the restive Spanish region of Catalonia could weigh on the country's growth but that the size of any impact cannot be gauged yet. The economy would slow even further to 1.3 percent in 2018, followed by 1.1 percent in 2019.

"We think, at this stage, that the macroeconomic impact is limited, nearly negligible", Mr. Moscovici said of the secessionist move that Madrid has moved to quash.

The Commission revised downward its forecasts for Greek growth this year - to 1.6 percent, compared to a 2.1 percent forecasts in May. That's why the European Central Bank is persisting with stimulus measures and keeping interest rates at rock-bottom levels. Moreover, structural convergence and the strengthening of the euro area are necessary to make it more resilient to future shocks and to turn it into a true motor of shared prosperity. The forecast revision for 2017 reflects mainly the weaker-than expected performance of private consumption in the first half of the year. Having fallen from 4% to 2.3% of GDP in 2016/17, the Government's deficit is expected to rise to 2.5% in 2017/18.

The closure of the second review in June 2017, together with the stronger-than-expected growth in the euro area and a favourable tourist season, are expected to strengthen the economy in the remainder of the year.

One laggard is Britain, where growth has come off the boil amid uncertainty over Brexit. Beyond 2017, the EC predicts eurozone and overall European Union growth of 2.1 percent in 2018 and 1.9 percent in 2019.

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