The European Union Commission released its autumn economic forecasts last week. As widely expected, based on the recent trends in the economy and the receding political risks, the euro area economy is expected to continue maintaining its bullish momentum.
Regional growth and inflation figures were also significantly higher which is expected to push the overall recovery in the euro area to new heights. The EU Commission’s forecasts remain broadly in line with the overall view that the euro area’s economic recovery was firmly entrenched.
Despite some disappointments to inflation, consumer prices are also expected to rise in the medium term outlook, but a lot remains hanging on the wage growth. According to the EU commission’s report, there was a significant amount of slack in the economy despite the unemployment rate in the EU falling to an eight-year low.
Here’s a quick recap of the EU Commission’s autumn forecasts.
Real GDP expected to rise 2.2% in 2017
According to the commission, the euro area economy was forecast to rise at the fastest pace in nearly a decade. The commission forecast that real GDP would rise 2.2% this year which was a big revision from the spring forecasts of 1.9%.
Economic growth is expected to rise 2.1% in 2018 and 1.9% in 2019. This was a modest revision from the spring forecasts of 1.8% and 1.9%. The commission said in its report that growth in the Eurozone surpassed expectations. But at the same time, the commission warned that growth could possibly ease in the longer term.
Private consumption, stronger global trade, and falling unemployment levels were attributed as the biggest drivers of growth in the Eurozone’s economy. The commission also said that there was a broad overall improvement in the regional economies as well and not just Germany.
According to the preliminary GDP reports, the Eurozone economy was seen to expand at a pace of 2.5% on an annual basis during the third quarter of 2017.
Wage growth expected to rise slowly
The EU commission said that although job creation was moving at a steady pace, there was still some significant slack left in the economy. As a result, wage growth is expected to rise only moderately.
For 2017, the commission forecasts that unemployment rate in the Eurozone will average to around 9.1% this year. This would mark the lowest unemployment rate in the Eurozone since 2009.
In the coming year, unemployment is forecast to fall to 8.5% and to 7.9% by 2019. The unemployment rate in the Eurozone fell to 8.9% in the month ending September 2017. This followed a downward revision to 9% unemployment level in August this year.
Inflation expected to remain subdued
The EU Commission said that with wage growth expected to rise only gradually, inflation could remain subdued in the near term. It expects inflation to average 1.5% in the euro area this year but is expected to fall to 1.4% next year. For 2019, the commission forecasts inflation to rise 1.6%.
In regards to risks, the commission said that the tensions with North Korea and the Brexit negotiations remain the immediate factors that could influence the eurozone’s economy. However, it noted that the risks were broadly balanced.
The commission’s report showed that UK’s growth could drop to 1.1% by 2019 and could lag behind most of the Eurozone economies. This was a weaker outlook when compared to the forecasts from the IMF or the Bank of England.
The report said that growth had already slowed significantly in the UK in the past few years. It said that GDP could fall from 2.3% in 2017 to 1.8% by next year and could slower further in the coming years. However, the EU commission said that the assumptions were only purely technical and clarified that the forecasts had no bearing on the outcome of the Brexit negotiations currently underway.