EU Raises Euro-Area GDP Forecast, Says Risks Are More Balanced

May 12, 2017, 12:21
EU Raises Euro-Area GDP Forecast, Says Risks Are More Balanced

The gross domestic product (GDP) across the single currency zone is expected to expand by 1.7 percent in 2017, said the European Commission in its spring economic forecast, up from the 1.6 percent in the winter forecast released three months ago.

Domestic demand remains the main growth factor. "We have spent a lot of energy on this and the climate has changed", said the European Commissioner for Economic and Financial Affairs, Taxation and Customs Pierre Moscovici, commenting on Greece's progress. The commission cut its inflation projections and sees consumer-price growth of just 1.3 percent in 2018, well below the ECB's goal.

"It is good news too that the high uncertainty that has characterized the past 12 months may be starting to ease", he said, noting that far-right nationalism "was defeated", a reference to far-right candidate Marine Le Pen's loss at last week's French presidential elections.

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"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 U.K.'s withdrawal from the European Union", the forecast said.

It suggests euro-area growth will be faster this year than previously believed and the unemployment rate could be the lowest in a decade.

Sterling also suffered from news of falling industrial production in Britain and a widening of the country's trade deficit.

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The 28-nation bloc as a whole would grow by 1.9% in both 2017 and 2018, the Commission said.

Italy remains however a potential source of risk, for its weak banks and high unemployment which fuels the rise of euroskeptic parties as elections approach. In 2017, the deficit is set to decline slightly to 2.2% of GDP. However, it reports that the labour market's better-than-expected performance, combined with continued robust wage growth and improving household balance sheets, will support consumption in 2017 and 2018.

The thrice-yearly review comes on the heels of Emmanuel Macron's presidential victory in France on a business friendly and pro-EU platform and as centrist politicians across Europe appear to be beating back a populist backlash against the bloc, amid tepid economic growth.

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