European Commission trims 2017 growth forecasts

The European Commission has cut its growth forecasts for the euro area and the European Union next year, saying risks are clearly tilted to the downside, as it pointed to the UK’s vote to leave the EU.

The EC expects eurozone GDP growth of 1.7% this year, up from 1.6% in its Spring forecast, but for next year it cut its estimate to 1.5% from 1.8%.

For the European Union, it forecasts growth of 1.8% this year, unchanged from its Spring estimate, but 2017 growth was cut to 1.6% from 1.9%.

The Commission forecasts 1.8% growth in 2018 for both the euro bloc and the EU.

The EC said the Brexit vote has raised uncertainty and can be seen as an indicator of heightened policy risks in the current volatile political environment.

“External risks, such as uncertain economic trends in China and the risk of aggravating geopolitical conflicts have also risen,” it said.

Overall, inflation in the euro area is seen increasing from 0.3% this year to 1.4% in both 2017 and 2018. Inflation in the EU is expected to rise from 0.3% in 2016 to 1.6% next year and 1.7% in 2018.

Meanwhile, the public deficit for the eurozone is expected to fall from 1.8% of GDP this year to 1.5% in both 2017 and 2018 as a result of lower social transfers in line with falling unemployment, wage bill moderation in the public sector and low interest rates, which make debt-servicing cheaper.

The debt-to-GDP ratio is expected to fall from 91.6% this year to 89.4% in 2018.