The EC predicts that the strong economic recovery of the EU and the Eurozone will continue in 2018 and 2019. For the current year, the expectations are that the both economies will expand by 2.3%, while next year forecasts indicate a slight slowdown in growth to 2.0% for both regions. Forecasts are higher than in the autumn report, when it was expected to grow by 2.1% and 1.9% in both years.
The Commission also presented technical assumptions without Britain’s involvement in the EU economy, saying economic growth for the EU27 would be higher by 0.2 percentage points and by 0.1 percentage points, for 2018 and 2019 respectively.
Main reasons for growth are both the strong impact of the upward phase of the economic cycle in Europe, where labor markets continue to improve, especially the positive economic attitudes and the higher-than-expected increase in economic activity and global trade.
The strong demand, high capacity utilization and favorable financial conditions are likely to have a positive impact on investment over the projection horizon.
As for the inflation, the EC estimates that its level in the Eurozone was 1.5% last year, and in the EU it is 0.2 percentage points higher. According to today’s forecasts, inflation will remain at the same level this year in the Eurozone, but will slightly accelerate in the EU28 – to 1.9%. Although in the Eurozone consumer price inflation will be slightly faster – up to 1.6%, the EU forecasts the opposite – a 0.1 percentage point slowdown.
The Commission commented that it expects that real inflation, which excludes volatile energy and unprocessed food prices, will remain moderate in a context of slow recovery from labor market stagnation and still low pressure to raise wages. The overall inflation will continue to be significantly influenced by energy prices.
According to the report, the risks to forecasted growth remain largely balanced. However, economic growth may exceed expectations in the short term in line with positive economic attitudes.