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EU raises euro zone growth forecasts, sees unemployment to drop

Better days ahead for the European Union?

The European Commission revised upward its forecasts of euro zone economic growth this year and projected a lower unemployment rate, in new signs that the bloc’s recovery is gathering pace, data released on Thursday showed.

The 19-country currency bloc is expected to expand by 1.7 percent this year and 1.8 percent in 2018, the EU executive said, slightly raising its previous estimate for euro zone growth of 1.6 percent this year, while leaving unchanged the 2018 projection.

The forecasts, published three times a year, confirm all euro zone countries will grow this year and next, with Germany, the bloc’s largest economy, accelerating to 1.9 percent in 2018, and Spain and Portugal expanding more than previously expected.

Outside the euro zone, the Commission revised upward its forecast of Britain’s growth to 1.8 percent this year, from a previously estimated 1.5 percent, and to 1.3 percent in 2018 from 1.2 percent, in a sign that the British economy will be hit less than expected by Britain’s decision to leave the EU.

Britain’s growth has however slowed down from 2.2 percent in 2015.

Brexit remains also one of the main risks for the bloc’s growth in the coming months, the Commission said.

It cited also as possible drags risks caused by the uncertainty surrounding future United States’ economic and trade policy, China’s economic adjustment and broader geopolitical tensions. Europe’s ailing banking sector is also seen as a concern.

Euro zone unemployment is expected to remain high but will go significantly down to 9.4 percent this year from 10.0 percent in 2016, before falling further down in 2018 to 8.9 percent, a bigger fall than previously estimated.

Inflation is expected to slow to 1.3 percent next year from a downwardly revised 1.6 percent this year, the Commission said, predicting a lower inflation than European Central Bank’s estimates of a 1.7 percent rate this year.

The state of public finances in euro zone countries is improving, as the Commission expects debts and deficits to go down as a proportion of the bloc’s gross domestic product (GDP).

Italy’s debt, the bloc’s highest after Greece, is forecast to grow slightly this year to 133.1 percent of GDP from 132.6 percent last year before falling to 132.5 in 2018, the Commission said, reducing its estimates of the Italian debt from its previous forecast.

France will instead have a deficit higher than previously predicted this year and in 2018, and above the threshold set by EU rules, the commission estimated, a possible reason of conflict with the new French President Emmanuel Macron.

France’s deficit will be 3 percent of GDP this year, from 2.9 percent previously forecast, and 3.2 percent in 2018 from the previous forecast of 3.1 percent. EU rules say countries should keep their deficits below 3 percent of GDP.

Germany’s trade surplus, an indicator that has often caused conflicts with Brussels for being excessive, will slow to 8.0 percent of GDP this year from 8.5 percent in 2016, and is predicted to go further down to 7.6 percent next year.

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Reuters News Service

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