EU Economic Forecast: Modest growth in challenging times
In its autumn forecast released last week, the EU Commission forecasts GDP growth in the Eurozone at 1.7% in 2016, 1.5% in 2017 and 1.7% in 2018. GDP in the EU as a whole should follow a similar trend.
Growth for 2017, in particular, is forecast to be lower than previously expected, as recent labour market gains and rising private consumption are being counterbalanced by a number of hindrances to growth. These include elevated geopolitical and political uncertainty, slowing growth outside the EU and weak global trade.
Private consumption is still set to remain the main growth driver over the whole forecast horizon. This could lead to some improvement in demand for meat, which has been sluggish in recent years. This year, private consumption should benefit from a rise in disposable incomes, stemming from robust employment growth and low inflation. Over the next two years, steady employment growth as well as a slight pick-up in wage growth should help offset the dampening impact of rebounding inflation on incomes. In sum, private consumption growth is only expected to moderate slightly next year.
The depreciation of the euro since 2014 helped European exporters to gain market share last year but no further gains are expected as the euro’s trade-weighted exchange rate has recently appreciated. Additionally, heightened uncertainty concerning the future trade relationship between the UK and the EU and increased protectionist sentiment, are expected to weigh on trade volumes during the forecast years. The leave vote could also be seen as an indicator of the increased political risks deriving from opposition to globalisation and free trade arrangements and, thereby, to the outlook for global trade.
Sarah Baker, Senior Analyst
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