EU Raises Eurozone Growth Outlook

2018-02-07 09:44

The European Commission raised its growth projections for the euro area citing stronger cyclical momentum in Europe and better than expected pick-up in global economic activity and trade. In the Winter Economic Forecast, the commission said the currency bloc will grow 2.3 percent in 2018, up from the previous projection of 2.1 percent. Likewise, the forecast for next year was upgraded to 2 percent from 1.9 percent. Risks to this growth forecast remain broadly balanced, the commission said. Downside risks were related to uncertain outcome of the Brexit negotiations and a shift towards more inward looking and protectionist policies. Further, EU observed that headline inflation will continue to reflect the significant influence of energy prices and is forecast to rise moderately. Inflation is forecast to remain at 1.5 percent in 2018 and to increase to 1.6 percent in 2019. In the Autumn Forecast, the agency had projected 1.4 percent for 2018 and 1.6 percent for 2019. Meanwhile, core inflation was forecast to stay subdued as labor market slack recedes only slowly and wage pressures remain contained. Germany's real GDP growth is expected to strengthen to 2.3 percent in 2018 and remain above 2 percent in 2019. At the same time, France's GDP growth was expected to reach 2.0 percent in 2018 before easing to 1.8 percent in 2019 as spare capacities in the economy are reabsorbed. Italy is forecast to expand 1.5 percent in 2018, led by exports and investment. Growth is forecast to slow to 1.2 percent in 2019. Spain's growth is forecast to be 2.6 percent this year. Growth is expected to ease over the forecast horizon, to an annual rate of 2.1 percent in 2019. The EU raised its growth outlook for UK to 1.4 percent from 1.3 percent this year but maintained the next year outlook at 1.1 percent.The agency said projections for 2019 are based on a purely technical assumption of status quo in terms of trading relations between the EU27 and the UK.