The eurozone economy will grow this year at its fastest rate in a decade following a run of upbeat news largely linked to a reduction in uncertainty following a series of elections, the European Union said Thursday. Private consumption and household investment, supported by both government-initiated and market-driven wage increases, as well as a strong recovery in bank lending and further fiscal loosening, is expected to lift growth in 2018; however, growth is set to slow in 2019 as capacity constraints emerge, it added.
The autumn forecast is substantially higher than the previous one of 1.7 percent in the spring, but the growth rate will slow slightly in 2018 to 2.1 percent and 1.9 percent in 2019.
Outside Europe, global tensions as well as adjustments in the Chinese economy or possible protectionist measures by the United States mean that the Commission can not predict whether EU's economic situation will "turn out better or worse than forecast".
The Commission had previously forecast growth for the year of 1.7 percent, but its autumn economic outlook sharply revises the figure on the back of surprisingly strong GDP growth figures announced for the third quarter last month. Investment is expected to increase modestly, mainly due to the construction sector.
"Growth in private consumption will be modest and uncertainty will continue to weigh on business investment decisions", Mr. Moscovici said. Moreover, structural convergence and the strengthening of the euro area are necessary to make it more resilient to future shocks and to turn it into a true motor of shared prosperity. Core inflation, which excludes energy and unprocessed food prices, by contrast, has been rising but remains subdued, reflecting the impact of a prolonged period of low inflation, weak wage growth as well as remaining labour market slack. The economy would slow even further to 1.3 percent in 2018, followed by 1.1 percent in 2019.
The closure of the second review in June 2017, together with the stronger-than-expected growth in the euro area and a favourable tourist season, are expected to strengthen the economy in the remainder of the year.
Investment growth was forecast to weaken in 2018 as uncertainty prompts companies to defer spending.
The EU predicted these reforms would benefit the economy, with French growth to hit 1.6 percent this year, up from the earlier 1.4 percent.
The commission stressed that its post-Brexit economic forecasts were based on a purely technical assumption of status quo in EU-U.K. trade relations. United Kingdom unemployment is projected to rise from 4.5% to 4.8% by 2019, while inflation eases from a peak of 2.7% to 2.1% in two years. "This is for forecasting purposes only and has no bearing on the talks underway in the context of the Article 50 process", the European Commission's forecasts note.