Autumn 2016 Economic Forecast: Modest growth in challenging times

Economic growth in Europe is expected to continue at a moderate pace, as recent labour market gains and rising private consumption are being counterbalanced by a number of hindrances to growth and the weakening of supportive factors. In its autumn forecast released today, the European Commission expects GDP growth in the euro area at 1.7% in 2016, 1.5% in 2017 and 1.7% in 2018 (Spring forecast: 2016: 1.6%, 2017: 1.8%). GDP growth in the EU as a whole should follow a similar pattern and is forecast at 1.8% this year, 1.6% in 2017 and 1.8% in 2018 (Spring forecast: 2016:1.8%, 2017: 1.9%).

Private consumption is set to remain the primary engine of growth through to 2018, supported by expectations for employment to continue growing and wages to pick up slightly. Borrowing costs remain supportive to growth due to exceptionally accommodative monetary policy. The euro area aggregate budget deficit is set to continue to edge down, while the fiscal stance is projected to remain non-restrictive. Investment is set to continue increasing.

However, political uncertainty, slow growth outside the EU and weak global trade weigh on growth prospects. There is also still a risk that the economy’s weak performance in recent years could hold back growth, and persistent slack points to the possibility of faster growth without undue inflationary pressures. Moreover, in the coming years, the European economy will no longer be able to rely on the exceptional support it has been receiving from external factors, such as falling oil prices and currency depreciation.