Business

European Union cuts United Kingdom growth forecast as eurozone motors ahead

European Union cuts United Kingdom growth forecast as eurozone motors ahead”

Driven by dimming political turbulence that economists had feared could hold back growth this year, the EU's regular forecast said gross domestic product in the 19-member eurozone would grow by 2.2% in 2017, beating its expectation of 1.7% in the previous forecast in May.

With current surveys already suggesting that heightened uncertainty is weighing on business investment in the United Kingdom, the EC report forecast investment growth will weaken in 2018, as many firms are likely to continue deferring investments in the face of uncertainty.

Even before the Brexit separation is sealed, United Kingdom growth is forecast to slow to 1.5% in 2017, with the prediction cut from a previous 1.8%.

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

The projections for 2017 and 2018 were raised from 3.6% and 3.5%, respectively, in the EC's spring economic forecast, released in May.

The main reasons for this are positive macroeconomic and labour market conditions, high consumer demand and corporate profits, and money earned through Malta's citizenship scheme.

The government 2017 balance is expected to remain in surplus at 0.9% of GDP. "It is expected that there will be some weakening of consumption at the end of the forecast period when higher inflation will reduce real household disposable income and slow down employment growth", the EC said in its report.

The commission said the eurozone had enjoyed its best year since the start of the financial crisis a decade ago, having shaken off the debt crisis that gripped the region a couple of years ago. "We see good news on many fronts, with more jobs being created, rising investment and strengthening public finances", economic and financial affairs commissioner Pierre Moscovici said in a statement.

Greece's economy is growing again, and the recovery is expected to strengthen as investment rebounds and consumption growth rises.

Domestic demand remains the primary driver of growth.

Despite the upbeat projections, the European Union said it still faces labor, wage and inflationary pressures that are compounded by risks posed by the U.K.'s exit from the bloc and President Donald Trump's protectionist economic policies. Unemployment in the euro area 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.

But conditions remain favourable and the latest indicators point to an increasing momentum in the second half of the year, according to the report.

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

"Thereafter, the debt-to-GDP ratio is expected to marginally decline to 130.8% in 2018 and to 130.0% in 2019, mainly due to stronger nominal growth".



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