EC raises euro zone growth forecasts

Unemployment rate expected to go down

BRUSSELS: 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 yesterday.

The 19-country euro zone is expected to expand by 1.7% this year and 1.8% in 2018, the EU executive said, slightly raising its previous estimate for euro zone growth of 1.6% this year, while leaving unchanged the 2018 forecast.

The projected growth for 2017, however, remains lower than 2016 when it was 1.8%, and further below the 2.0% 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% 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 characterised 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 rate is expected to go down to 9.4% this year from 10.0% in 2016, before falling further in 2018 to 8.9%, a bigger drop than previously estimated.

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% in 2018.

Inflation is forecast to slow to 1.3% next year from a downwardly revised 1.6% this year, the commission said, predicting a lower inflation than the European Central Bank’s estimates of a 1.7% rate this year.

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% this year from the 2.7% forecast three months ago, because of uncertainty caused by delays in its bailout programme, Moscovici said.

GDP growth in Greece is also set to shrink to 2.5% from previously estimated 3.1% in 2018.

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% of GDP from 132.6% 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 eurosceptic parties as elections approach.

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% of GDP this year, from 2.9% previously forecast, and 3.2% in 2018 from the previous forecast of 3.1%. EU rules say countries should keep their deficits below 3% of GDP.