Eurozone growth to hit fastest in a decade in 2017

Lucy Hill
November 10, 2017

The European Commission (EC) has raised its projections for GDP growth in Hungary to 3.7% for this year and 3.6% in 2018 in a forecast released Thursday, Hungarian news agency MTI reported.

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.

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. The commission projected headline inflation to slow to 1.4 percent in 2018 and to tick slightly higher to 1.6 percent in 2019.

Strong export growth, particularly in services, and a fall in imports related to the contraction in investment is pushing up the current account surplus, which is forecast to approach 10% of GDP in 2017.

Political anxiety has also decreased across Europe - as Germany, France and the Netherlands re-elected centrist, pro-EU governments this year.

GDP is forecast to grow by 3.5% in 2018, with a more balanced, and broad-based composition.

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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 deficit is moving closer to balance but risks to the fiscal outlook remain".

The surplus is expected to decline to 0.5% in 2018, once the 2018 budget measures are introduced, but should remain stable at the same figure in 2019, under a no-policy-change assumption. The euro zone, meanwhile, is expected to grow by 1.7 per cent this year, an increase of 0.1 percentage points compared to the previous estimate. "The European economy has performed significantly better than expected this year, propelled by resilient private consumption, stronger growth around the world, and falling unemployment".

A favourable relocation of financial services operators linked to the process of the United Kingdom leaving the European Union could also affect GDP growth, particularly in 2019.

Wages are expected to improve as the increase in labour supply slows down. 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.

The delay in closing the second review on the programme, earlier this year, is a "major explanation", Moscovici said, as consumption and investment were "hit more than we had expected" by uncertainty over negotiations between Athens and its creditors. In the European Union, the unemployment rate is projected at 7.8% this year, 7.3% in 2018 and 7.0% in 2019. 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.

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