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Euro economy shows robust growth as forecasts revised upwards

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Euro economy shows robust growth as forecasts revised upwards

Pierre Moscovici - Photo EC

(BRUSSELS) - Growth rates for the eurozone and the EU beat expectations last year as the transition from economic recovery to expansion continues, according to Wednesday's EU Winter Interim Economic Forecast.

The euro area and EU economies are both estimated to have grown by 2.4% in 2017, the fastest pace in a decade. And this is set to continue in 2018 and 2019 with growth of 2.3% and 2.0% respectively in both the euro area and EU.

"Europe's economy has entered 2018 in robust health," said Economic and Financial Affairs Commissioner Pierre Moscovici: "Unemployment and deficits continue to fall and investment is at last rising in a meaningful way."

He said that economic growth was more balanced than a decade ago. If the EU continued to pursue "smart structural reforms and responsible fiscal policies", it could be a more durable recovery.

The 2.4% GDP growth now estimated for 2017 is above November's Autumn Economic Forecast projections of 2.2% for the euro area and 2.3% for the EU.

Growth forecasts for 2018 and 2019 have also been raised since November for both the euro area and EU economies: from 2.1% to 2.3% for this year and from 1.9% to 2.0% for 2019. This is a result of both stronger cyclical momentum in Europe, where labour markets continue to improve and economic sentiment is particularly high, and a stronger than expected pick-up in global economic activity and trade.

Core inflation, which excludes volatile energy and unprocessed food prices, is expected to stay subdued as labour market slack recedes only slowly and wage pressures remain contained. Headline inflation will continue to reflect the significant influence of energy prices and is forecast to rise modestly. Inflation in the euro area reached 1.5% in 2017. It is forecast to remain at 1.5% in 2018 and to increase to 1.6% in 2019.

Risks to the forecast remain broadly balanced, says the report. Economic growth could exceed expectations in the short term as indicated by the high level of sentiment. In the medium term, high global asset prices could be vulnerable to a re-assessment of risks and fundamentals. Downside risks related to the uncertain outcome of the Brexit negotiations remain, as do those associated with geopolitical tensions and a shift towards more inward looking and protectionist policies.

Regarding the United Kingdom, given the ongoing negotiations on the terms of the UK withdrawal from the EU, the Commission's projections for 2019 are based on a purely technical assumption of status quo in terms of trading relations between the EU27 and the UK. The report makes clear that this is for forecasting purposes only and has no bearing on the talks underway in the context of the Article 50 process.

Full document: Winter 2018 Interim Economic Forecast

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