EU raises euro zone
growth forecasts, sees drop in unemployment
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[May 11, 2017]
By Francesco Guarascio
(Reuters) - Euro zone economic growth should grow a bit faster this year
than previously believed and the unemployment rate could be the lowest
in a decade, the European Commission said on Thursday.
It also predicted low inflation, a challenge for the European Central
Bank which is trying to boost it.
The 19-country euro zone is expected to expand by 1.7 percent this year
and 1.8 percent in 2018, the EU executive said, slightly raising its
previous estimate for euro zone growth of 1.6 percent this year, while
leaving unchanged the 2018 forecast.
The projected growth for 2017, however, remains lower than 2016 when it
was 1.8 percent, and further below the 2.0 percent post-crisis high
reached in 2015.
The Commission's forecasts, published three times a year, predict all
euro zone countries will grow this year and next, with Germany, the
bloc's largest economy, accelerating to 1.9 percent in 2018, and Spain
and Portugal expanding much more than previously expected.
"Europe is entering its fifth consecutive year of growth," EU Economics
Commissioner Pierre Moscovici said.
"It is good news too that the high uncertainty that has characterized
the past 12 months may be starting to ease," he said, noting that
far-right nationalism "was defeated," a reference to far-right candidate
Marine Le Pen's loss at last week's French presidential elections.
In a further sign of a healthier economy, euro zone unemployment is
expected to go down to 9.4 percent this year from 10.0 percent in 2016,
before falling further in 2018 to 8.9 percent, a bigger drop than
If confirmed, the 2018 figure would be the lowest since the beginning of
2009, although the rate of people without jobs will remain well above
the average in Italy, Spain, Cyprus and Greece, where is projected at
21.6 percent in 2018.
Inflation is forecast to slow to 1.3 percent next year from a downwardly
revised 1.6 percent this year, the Commission said, predicting a lower
inflation than European Central Bank's estimates of a 1.7 percent rate
Risks for euro zone economic growth have decreased from previous
forecasts but remain "elevated", the commission said.
Greece's growth was cut to 2.1 percent this year from the 2.7 percent
forecast three months ago, because of uncertainty caused by delays in
its bailout program, Moscovici said.
GDP growth in Greece is also set to shrink to 2.5 percent from
previously estimated 3.1 percent in 2018.
Outside the euro zone, the Commission revised upward its forecast of
Britain's growth to 1.8 percent this year, from a previously estimated
1.5 percent, and to 1.3 percent in 2018 from 1.2 percent, in a sign that
the British economy will be hit less than expected by Britain's decision
to leave the EU.
[to top of second column]
European Economic and Financial Affairs Commissioner Pierre
Moscovici presents the EU executive's economic forecasts during a
news conference at the EU Commission headquarters in Brussels,
Belgium May 11, 2017. REUTERS/Francois Lenoir
Britain's growth has however slowed down from 2.2 percent in 2015, and
domestic demand is expected to weaken as inflation is projected to reach
2.6 percent this year and next, above Bank of England's target of 2
Brexit remains one of the main risks for the bloc's growth in the coming
months, the Commission said.
The state of public finances in euro zone countries is generally
improving, as the Commission expects debts and deficits to go down as a
proportion of the bloc's gross domestic product (GDP), but problems
remain in some countries.
Italy's debt, the bloc's highest after Greece, is forecast to grow
slightly this year to 133.1 percent of GDP from 132.6 percent last year
before falling to 132.5 in 2018, the Commission said, reducing the size
of the Italian debt from its previous forecast.
Italy remains however a potential source of risk, for its weak banks and
high unemployment which fuels the rise of euroskeptic parties as
The country's growth is also forecast to be the weakest among all 28 EU
countries this year and next.
France's growth is gaining speed but the country will have a deficit
higher than previously predicted this year and in 2018, and above the
threshold set by EU rules, the commission estimated, a possible reason
of conflict with the new French President Emmanuel Macron.
France's deficit will be 3 percent of GDP this year, from 2.9 percent
previously forecast, and 3.2 percent in 2018 from the previous forecast
of 3.1 percent. EU rules say countries should keep their deficits below
3 percent of GDP.
Germany's trade surplus, an indicator that has often caused conflicts
with Brussels for being excessive, will slow to 8.0 percent of GDP this
year from 8.5 percent in 2016, and is predicted to go further down to
7.6 percent next year.
(Reporting by Francesco Guarascio; editing by Philip Blenkinsop/Jeremy
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