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Growth is set to remain strong in 2018 and ease slightly in 2019; the European economy is in good shape but more exposed to external risk factors.  The European Commission published its Spring 2018 Economic Forecast. It covers the years 2017, 2018 and 2019 and includes data for all 28 EU Member States. According to the Commission's forecasts, growth rates for the EU and the euro area beat expectations in 2017 to

reach a 10-year high at 2.4%. Growth was supported by high consumer and business confidence, stronger global growth, low financing costs, healthier private sector balance sheets and brighter labour market conditions. While short-term indicators suggest a cooling of activity in early 2018, this looks likely to be partly temporary. The pace of growth is expected to remain robust on the back of sustained consumption and strong exports and investment. Both the EU and the euro area are forecast to grow by 2.3% this year. Growth in both areas is projected to ease to 2.0% in 2019 as bottlenecks become more apparent in some countries and sectors, monetary policy is adjusted to circumstances and global trade growth calms somewhat.

The aggregate euro area government budget deficit and public debt both fell as percentages of GDP in 2017, helped by strong economic growth and low interest rates. With Member States' budgets benefitting from the effects of improving labour market conditions, including through lower social benefit payments, 2018 is set to be the first year since the start of the Economic and Monetary Union in which all governments manage budget deficits of less than 3% of GDP, as referred to in the Treaty. The euro area's debt-to-GDP ratio is forecast to fall to 84.1% in 2019, with declines projected for almost all Member States.

Unemployment continues to fall and is now around pre-crisis levels. The number of people in work in the euro area is now at its highest since the introduction of the euro, but some labour-market slack remains in the euro area. While in certain Member States unemployment is still high, in others, job vacancies are already getting harder to fill.

Consumer price inflation weakened in the first quarter of this year, but is expected to pick up slightly in the coming quarters, partly due to oil prices that have recently increased. Underlying price pressures are also building as a result of tighter labour markets and faster wage growth in many Member States.

However, according to the Commission's forecasts, the risks to the forecast have risen and are now tilted to the downside. In Europe, recent indicators have reduced the likelihood that growth in Europe might turn out stronger than expected in the near term. Externally, the financial market volatility experienced in recent months is likely to become a more permanent feature in the future, which will add to uncertainty.

 

 

 

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