Growth threat from Brexit, US policies
The Commission increased its forecast but warned the recovery in jobs and investment remains uneven
13 May, 2017
The ЕU raised on 11 May its Eurozone growth forecast, saying the recovery was gaining strength despite the elevated uncertainties of Brexit and the protectionist policies of US President Donald Trump. In its spring economic forecast, the European Commission said economic growth among the 19 countries using the euro currency would reach 1.7% this year and 1.8% in 2018. That is compared with estimates made in February of 1.6% and 1.8%, respectively. Growth in the full 28-nation EU is set to remain constant at 1.9% both years.
Economy Commissioner Pierre Moscovici welcomed the fact that Europe is entering its fifth year of growth and "that the high uncertainty that has characterised the past 12 months may be starting to ease". However, he warned that "the euro area recovery in jobs and investment remains uneven. Tackling the causes of this divergence is the key challenge we must address in the months and years to come."
The protectionist stance on world trade by the Trump administration, Britain's divorce from the EU, and the fragility of European banks could all negatively impact the future of the economy, the Commission said. Measures of investment intentions from recent surveys are soft and businesses are expected to defer investments in the face of uncertainty relating to the negotiations regarding the UK's withdrawal from the EU, the forecast states. It said the positive outlook came in large part thanks to an improving global economy, with the United States and China helping lift Europe.
Inflation has risen significantly in recent months, mainly due to oil price increases. However, core inflation, which excludes volatile energy and unprocessed food prices, has remained relatively stable and substantially below its long-term average. Inflation in the euro area is forecast to rise from 0.2% in 2016 to 1.6% in 2017 before returning to 1.3% in 2018 as the effect of rising oil prices fades away. The Commission said unemployment in the Eurozone would continue to fall in 2017, reaching 9.4% after ending 2016 at 10%.
All eyes were on France, where pressure is building on new President Emmanuel Macron to deliver reforms that will put the brakes on the country's high public spending. The Commission said that the French public deficit this year would land safely on the EU's limit of 3% of annual GDP, on the back of overall growth of 1.4%.
The news was positive for Spain which saw its growth target upgraded sharply and confirming a turnaround from the Eurozone crisis when the economy crumbled due to a real estate crash.