As the euro area economy continues to grow at its fastest pace in a decade, surpassing expectations, the EU Commission forecasts growth of 2.2 per cent this year, up 0.5 per cent on predictions in the spring.
After climbing to 2.2% this year, euro area GDP growth is forecast to grow by 2.1% in 2018 and 1.9% in 2019. For 2019, the EC predicts 3.4 percent GDP growth. Private consumption is forecast to slow down in 2018 and 2019.Higher increase in imports, driven by strong domestic demand, will lead to a reduction in the current account surplus to 3% of GDP in 2017. The bloc also cut its United Kingdom 2017 economic growth forecast to 1.5% from 1.8% while keeping it steady at 1.3% for next year.
The EC forecast did not mention the Catalonian crisis and actually raised growth forecasts for Spain up to a healthy 3.1 percent for 2017.
The EC said growth this year is supported by private consumption and rebounding investment.
The increase follows the International Monetary Fund upping Turkey's 2017 growth forecast 2.6 percentage points on October 10, the World Bank raising its forecast 0.4 percentage points on October 19 and the European Bank for Reconstruction and Development's [EBRD] lifting it by 2.6 percentage points on November 7. The unemployment rate is projected to fall to 6.4% in 2017 and to gradually reach 5.7% in 2019.The Commission's assessment of the general government budget coincides with the fiscal policy objectives set out in the three-year budgetary projections 2018-2020, namely: a balanced budget in 2017 and 2018 and a surplus in 2019.
Tax revenues in 2018 are predicted to continue growing due strong to real GDP growth, despite a reduction in taxation.
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Wage growth grew moderately for the first half of 2017, even though the unemployment rate was very low, and skill shortages increased.
"After five years of moderate recovery, European growth has now accelerated", EU Economy Commissioner Pierre Moscovici said on Thursday. "The period of unpredictability could be extended if some creditors decide to oppose the outcome of the settlement, which should be reached by mid-2018", said the Commission.
The improving economic outlook reflects a broader global economic upswing that is stoking investments by European Union companies as political and economic uncertainties dim. The economies of all Member States are expanding and their labour markets improving, but wages are rising only slowly.
The Commission expects an export recovery in the second half of this year, after somewhat weaker results in the second quarter, thanks to high external demand and further integration into European Union markets.
United Kingdom growth slowed down this year - to 1.5 percent from 2.3 percent in 2015 and 1.8 percent in 2016 - because higher prices led to lower consumption.
Once the labour supply increase becomes more moderate, wage growth is forecast to improve.