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November 10, 2017

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Eurozone to grow in 2017 at fastest rate in a decade

THE eurozone economy will grow this year at its fastest rate in a decade following a run of upbeat news largely linked to a reduction in uncertainty following a series of elections, the European Union said yesterday.

In updated forecasts, the European Commission, the EU’s executive, said it expects growth this year of 2.2 percent, which would be the highest rate for the 19-country bloc since 2007. In its previous forecast in the spring, it had forecast growth of 1.7 percent.

The commission also raised its eurozone growth forecast for next year to 2.1 percent from 1.8 percent and said growth in 2019 is expected to be 1.9 percent.

The upgrades take into account strong economic indicators from the eurozone as risks to the outlook, largely related to a series of elections in Europe this year, have dissipated. Though populist forces remain a major presence in a number of countries, such as in Austria, politicians from the mainstream broadly came out on top in elections in France, Germany and the Netherlands.

“After five years of moderate recovery, European growth has now accelerated,” said Pierre Moscovici, the commission’s top economic official.

“We had several major elections; they are now behind us and political uncertainty .... has continued to decrease from the high levels experienced a year ago.”

In its autumn forecast, the commission said the risks to the outlook were “broadly balanced.” That’s the first time in years the risks are not “tilted to the downside,” a clear sign that the debt crisis has abated, notably in Greece, where growth is expected to beat the eurozone average in 2018 and 2019 at 2.5 percent in both years. Greece is set to exit its bailout era, which started in 2010, next summer.

Still, the commission noted a series of risks such as elevated geopolitical tensions, the extension of protectionist trade policies, Britain’s exit from the EU and the rise in the euro. Positive forces could emerge, however, from diminishing uncertainty and improving sentiment in Europe to stronger global growth.

It also cautioned that developments in the restive Spanish region of Catalonia could weigh on the country’s growth but that the size of any impact cannot be gauged yet. Spain’s economy is predicted to expand by an impressive 3.1 percent this year, falling back to 2.5 percent and 2.1 percent over the next two years — even without any impact from Catalonia’s independence movement, which has prompted Madrid to impose direct rule on the region and arrest many of its leaders.

“We cannot speculate on any political development anywhere,” Moscovici said.

One particular area of concern cited by Moscovici related to subdued wage rises that are keeping inflation across the bloc below the European Central Bank’s target of just under 2 percent. That’s why the ECB is persisting with stimulus measures and keeping interest rates at rock-bottom levels. He also said the eurozone needs to become “more resilient” to future shocks.

The commission also published a forecast for the wider 28-nation EU, which includes non-euro countries like Britain. It said growth this year would likely be 2.3 percent, up from 1.9 percent, while next year’s would be 2.1 percent, also up from 1.9 percent.


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