Wednesday September 26th, 2018 5:32AM

Eurozone forecast to grow at fastest rate in 10 years

By The Associated Press

LONDON (AP) — 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 Thursday.

In updated forecasts, the EU's executive Commission 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 penciled in 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 presence in a number of countries, such as in Austria, politicians from the mainstream 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 economy 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 that the risks are not "tilted to the downside" and a clear sign that the bloc's 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.

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

One area of concern cited by Moscovici related to subdued wage increases that are keeping inflation across the bloc below the European Central Bank's target of just below 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 and turn itself into a "true motor of shared prosperity."

Moscovici cautioned that the recovery in the eurozone is low by historical standards and was "atypical given its dependence on policy support, the continuing presence of fiscal and financial fragilities stemming from the crisis and the relatively subdued domestic demand compared to past recoveries."

The Commission also published a forecast for the wider 28-nation EU, which includes non-euro countries such as Britain. It said growth this year would likely be 2.3 percent, up from a previous forecast of 1.9 percent, while next year's would be 2.1 percent, also up from 1.9 percent. For 2019, it expects growth of 1.9 percent.

One laggard in the figures is Britain, where growth has come off the boil amid uncertainty over Brexit. The Commission forecast that growth in Britain in 2019 would only be 1.1 percent but stressed that its forecast was just a "technical assumption of status quo" in terms of the future trading relationship between the country and the rest of the EU.

This, the Commission said, is for "forecasting purposes only and has no bearing on the talks underway" in the context of the Brexit talks, which resumed Thursday.

  • Associated Categories: Associated Press (AP), AP World News, AP Business, AP Business - Economy, AP Business - Financial Markets
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