Eurozone growth outlook raised despite ‘exceptional risks’

BRUSSELS - Agence France-Presse

REUTERS photo

Europe’s economic recovery remains on track but vulnerable to the “exceptional risks” of Brexit and the new Donald Trump administration, the EU said on Feb. 13.

Brussels raised its growth forecasts for the eurozone through to 2018 but warned that the European Union as a whole was navigating “choppy waters.”

“The European economy has proven resilient to the numerous shocks it has experienced over the past year,” EU economic affairs commissioner Pierre Moscovici said.

“Yet with uncertainty at such high levels, it’s more important than ever that we use all policy tools to support growth.” The 19-country eurozone will grow by by 1.6 percent in 2017 followed by 1.8 percent in 2018, the European Commission said in its winter economic forecast.

That is compared with predictions made in autumn of 1.5 percent in 2017 and 1.7 percent in 2018.

Bailed out Greece, which swung out of recession last year but is now at the center of fresh fears for the eurozone, was forecast to grow by 2.7 percent in 2017 and 3.1 percent in 2018.

The 28-nation bloc as a whole would grow by 1.8 percent in both 2017 and 2018, the commission said.

But the forecast warned darkly of the “exceptional risks” from Britain’s vote to leave the EU and uncertainty over Trump’s policies.

“The particularly high uncertainty surrounding this winter forecast is due to the still-to-be-clarified intentions of the new administration of the United States in key policy areas,” it said.

The report also cited “the numerous elections to be held in Europe this year and the upcoming ‘Article 50’ negotiations with the UK.”   

“And although both upside and downside risks have increased, the overall balance remains tilted to the downside.”   

Expected next month, the triggering of Article 50 of the European Union’s Lisbon Treaty begins two years of potentially acrimonious talks with Britain on how it will leave the EU.

Elections are meanwhile due in the Netherlands, France and Germany.

Britain would grow by 1.5 percent this year, instead of a far lower 1.0 percent forecast earlier on fears that Brexit would destabilize the economy.

But this remained far lower than the 2.0 percent growth forecast by the Bank of England last week.

The commission also said that inflation was creeping higher in the eurozone as energy prices lifted from historic lows.

The EU warned that this could lead the European Central Bank to end its massive stimulus program that has strengthened the economic recovery in Europe.

Overall, the commission said inflation in the eurozone would increase from a low 0.2 percent in 2016 to 1.7 percent in 2017 and 1.4 percent in 2018.

“With inflation picking up from low levels, we cannot expect current monetary stimulus to last forever,” said European Commission vice-president Valdis Dombrovskis.