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Economic growth expected across EU but uncertainty high, says EC forecast
For the first time in almost a decade, the economies of all EU Member States are expected to grow for three consecutive years (2016-2018) according to the European Commission's Winter Forecast published today. The UK economy is forecast to see lower growth of 1.5% in 2017 and 1.2% in 2018, compared to 2% in 2016.
The general European economic recovery is expected to continue this year and next, after it proved resilient to global challenges last year. The Commission expects euro area GDP growth of 1.6% in 2017 and 1.8% in 2018. This is slightly revised up from the Autumn Forecast (2017: 1.5%, 2018: 1.7%) on the back of better-than-expected performance in the second half of 2016 and a rather robust start into 2017. GDP growth in the EU as a whole should follow a similar pattern and is forecast at 1.8% this year and next (Autumn Forecast: 2017: 1.6%, 2018: 1.8%).
However, the outlook is surrounded by higher-than-usual uncertainty due in particular to the still-to-be-clarified intentions of the new administration of the United States in key policy areas, as well as the numerous elections to be held in Europe this year and the upcoming "Article 50" negotiations with the UK.
The lower growth predicted for the UK is based on the analysis that, with time, business investment is likely to be adversely affected by persisting uncertainty while private consumption growth is projected to weaken as growth in real disposable income declines. Inflation is expected to rise to over 2% and remain elevated. The impact on the labour market of subdued demand is likely to be muted. Fiscal consolidation is projected to continue. Full details for the UK can be found here
Real GDP in the euro area has grown for 15 consecutive quarters, employment is growing at a robust pace and unemployment continues to fall, although it remains above pre-crisis levels. Private consumption is still the engine of the recovery. Investment growth continues but remains subdued.