Upbeat forecast gives EU wings
Both the Eurozone and the whole Union economies will continue growing up in a changing policy context
10 November, 2017
The EU-28 and the Eurozone economies will continue with their robust growth in 2018 and in 2019, according to the Commission's autumn economic forecast, presented last Thursday. The EC expects 2017 growth to stand at 2.2% in the Eurozone and at 2.3% in the EU as a whole, and to continue at 2.1% in 2018 and at 1.9% in 2019 in both areas. This is substantially higher than expected in spring, when the 2017 growth was set at 1.7%.
The highest growth within the Eurozone is expected in Malta (5.6%), Ireland (4.8%) and Slovenia (4.7%), while the lowest is projected for Greece and France (1.6%) and Italy (1.5%). In Britain, growth is projected to hit 1.5% this year and then slow to 1.3% in 2018 and 1.1% in 2019, when the country is set to leave the EU.
“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. Yet challenges remain in the form of high debt levels and subdued wage increases. A determined effort from Member States is needed to ensure that this expansion will last and that its fruits are shared equitably,” Economic Commissioner Pierre Moscovici stated. “The EU economy is performing well overall. Economic growth and job creation are robust, investment is picking up and government deficit and debt are gradually decreasing. There are also signs of a resumption of a process of convergence in real incomes,” VP Valdis Dombrovskis added.
According to the Commission, France and Spain will manage this year to cut their budget gaps enough, and in 2018 will be able to meet deadlines set by EU finance ministers. At the same time, Italy's public debt will peak this year, but will start falling from 2018 on. The EC forecast that the French budget deficit would fall to 2.9% of GDP this year from 3.4% in 2016, making the 2017 deadline set by the EU for the gap to shrink below 3%. Spain, which has a deadline for a deficit below 3% set for next year, will bring it down to 3.1% this year from 4.5% in 2016, and then cut it to 2.4% in 2018, the Commission forecast. Italy's public debt, the second highest in the EU after Greece, will fall to 130.8% in 2018 and to 130% in 2019, according to the Commission.
The European economy has performed significantly better than expected this year, propelled by resilient private consumption, stronger growth around the world, and falling unemployment, the Commission claims. Investment is also picking up amid favourable financing conditions and considerably brightened economic sentiment, as uncertainty has faded. The economies of all Member States are expanding and their labour markets improving, but wages are rising only slowly.
Although the cyclical recovery has now been under way for 18 uninterrupted quarters, it remains incomplete, with for instance still significant slack in the labour market and low wage growth. GDP growth and inflation are therefore still dependent on policy support. The European Central Bank has kept its monetary policy very accommodative while some other central banks around the world have started raising interest rates. A number of Eurozone Member States are expected to adopt expansionary fiscal policies in 2018, but the overall fiscal stance of the euro area is expected to stay broadly neutral.
As far as employment is concerned, job creation is to sustain and labour market conditions are set to benefit from the domestic-demand driven expansion, moderate wage growth, and structural reforms implemented in some Member States. Unemployment in the Eurozone is expected to average 9.1% this year, its lowest level since 2009, as the total number of people employed climbs to a record high. Over the next two years, unemployment is set to decrease further to 8.5% in 2018 and 7.9% in 2019. In the EU, the unemployment rate is projected at 7.8% this year, 7.3% in 2018 and 7.0% in 2019. Job creation is expected to moderate, as temporary fiscal incentives fade in some countries and skill shortages emerge in others.
The risks that economic developments could turn out better or worse than forecast are broadly balanced. The main downside risks are external, relating to elevated geopolitical tensions, possibly tighter global financial conditions, the economic adjustment in China or the extension of protectionist policies. In the EU, downside risks relate to the outcome of the Brexit negotiations, a stronger appreciation of the euro, and higher long-term interest rates. By contrast, diminishing uncertainty and improving sentiment in Europe could lead to stronger-than-forecast growth, as could stronger growth in the rest of the world.