European Commission Increases GDP Growth Forecast for Croatia

Javier Stokes
November 10, 2017

The European Commission (EC) increased the forecast of this year's GDP growth by 0.7 percentage point to 4.2 percent.

Growth, the commission points out, has already slowed significantly in the United Kingdom in the last couple of years, falling from 2.3% in 2017, to just 1.8% in 2016.

In a regular forecast for all European Union economies, the Commission said the French budget deficit would fall to 2.9 percent of GDP this year from 3.4 percent in 2016 - making the 2017 deadline set by the European Union for the gap to shrink below 3 percent.

The current account gap is forecast to continue widening from 2.4%/GDP in 2016 to 3.1% in 2017 and 3.2% in 2018, due to strong domestic demand and import growth, which is projected to continue outpacing the growth of exports, in line with strong private consumption.

In its previous forecasts in May, the Commission counted on only a 1.9 percent growth this year and next year.

Investment on the other hand is set to be sustained by the residential construction sector, which will grow further in 2018.

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Malta's treal GDP growth could be pushed by the faster completion of infrastructure projects, as well as by the potential relocation of financial services operators to Malta due to Brexit. He also said the eurozone needs to become "more resilient" to future shocks and turn itself into a "true motor of shared prosperity".

Regarding inflation, the Commission expects that robust domestic demand, additional wage hikes in a tight labour market and additional fiscal stimulus will gradually drive inflation rate upwards and make it re-enter the Romanian central bank's target band of 2.5%±1 pp. Core inflation, which excludes energy and unprocessed food prices, by contrast, has been rising but remains subdued, reflecting the impact of a prolonged period of low inflation, weak wage growth as well as remaining labour market slack. Spain's economy is predicted to expand by an impressive 3.1 percent this year, falling back to 2.5 percent and 2.1 percent over the next two years - even without any impact from Catalonia's independence movement, which has prompted Madrid to impose direct rule on the region and arrest many of its leaders.

In spite of increases in social spending related to the budget measures (among which is an increase in pensions by €2 per week), current expenditure growth is projected to weaken and interest expenditure is set to marginally decrease.

The Commission estimates that the budget deficit this year and next year will be 0.9 percent of GDP, while in 2019 it will be 0.7 percent of GDP.

The EU Commission has downgraded its expectations for United Kingdom economic growth, saying its assumptions are even based on there being no change in trading status after Brexit.

Financial sector growth strengthened in the first half of 2017, underpinned by the euro area's recovery. "This is for forecasting purposes only and has no bearing on the talks underway in the context of the Article 50 process", the European Commission's forecasts note.

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