Eurozone growth at fastest pace in 10 years

Randall Padilla
November 10, 2017

The European Commission on Thursday (9 November) gave an optimistic view of the EU economy, saying that it is "on track to grow at its fastest pace in a decade this year".

In its forecasts, the European Commission said growth in 2018 would edge lower to a still strong 2.1 percent, followed by 1.9 percent in 2019.

By 2019, real GDP growth is expected to slow down to 4.1%, with private consumption remaining the main growth driver. The commission projected headline inflation to slow to 1.4 percent in 2018 and to tick slightly higher to 1.6 percent in 2019. Nonetheless, this was bigger than the 1.8 percent forecast previously.

"This is the highest growth rate in 10 years", said European Union economic affairs commissioner Pierre Moscovici said at a press conference.

The Commission also said that the French deficit this year would fall under the EU's limit of 3.0 percent of annual GDP.

The agency noted that the European Union economy continues to glide forward on the wings of favorable financing conditions made possible by accommodative monetary policies, with additional thrust from improving labor market conditions and stronger global growth and trade.

Brussels believes that the United Kingdom economy will slow further to 1.3% in 2018 and 1.1% in 2019 - with growth of just 0.3% in every quarter for the next two years.

The government 2017 balance is expected to remain in surplus at 0.9% of GDP. This is a result both of a good performance of the economy in the first half of the year and an upward revision to 2016's GDP growth rate.Domestic demand is the engine of growth in 2017, and is expected to remain so for the entire period, backed by strong performance of private and public consumption and a recovery in investment.

That compares with 0.5% this year, the Commission said.

"Investment is also picking up amid favourable financing conditions and considerably brightened economic sentiment as uncertainty has faded", it said.

He also noted that the current growth cycle is characterised by "less output" than previous cycles, and that "a sluggish wage growth partly reflects low productivity growth and persistent slack in [the] labour market".

The main factor behind this year's growth is set to be external demand, with domestic demand coming in second because of a significant contraction in investment.

United Kingdom growth slowed down this year - to 1.5 percent from 2.3 percent in 2015 and 1.8 percent in 2016 - because higher prices led to lower consumption.

The EC projects the general government deficit will rise to 2.1% of GDP this year and 2.6% in 2018, before falling to 2.3% in 2019.

Once the labour supply increase becomes more moderate, wage growth is forecast to improve.

"The long-lasting moderate expansion has shifted into more robust and long-lasting growth", said Pierre Moscovici, the European commissioner for economic and financial affairs, taxation and customs.

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