Published: Fri, November 10, 2017
Money | By Charlene Sutton

Brexit woes: European Commission slashes United Kingdom growth forecasts

Brexit woes: European Commission slashes United Kingdom growth forecasts

The European Commission said on Thursday it has raised its projection for Romania's economic expansion in 2017 to a real 5.7% from 4.3% forecast in May, but warned that the government's policy uncertainties could hamper growth. It said Italy's GDP is expected to rise 1.5% in 2017, compared to the May forecast of 0.9%, but slow to 1.3% in 2018 (compared to 0.9% predicted previously) and 1% in 2019.

The pace is the quickest in a decade, and the European Commission said it anticipates continued growth of 2.1 percent next year and almost 2 percent in 2019.

The Commission also said that the French deficit this year would fall under the EU's limit of 3.0 percent of annual GDP.

The International Monetary Fund is expecting United Kingdom growth of 1.7 per cent this year, while the Organisation for Economic Cooperation and Development is forecasting growth of 1.6 per cent.

Outside Europe, global tensions as well as adjustments in the Chinese economy or possible protectionist measures by the United States mean that the Commission can not predict whether EU's economic situation will "turn out better or worse than forecast".

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

In line with robust real GDP growth and a strong labour market, and despite the reduction in taxation worth 0.2% of GDP, tax revenues are expected to continue growing.

"The European economy has performed significantly better than expected this year, propelled by resilient private consumption, stronger growth around the world, and falling unemployment".

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. The economy would slow even further to 1.3 percent in 2018, followed by 1.1 percent in 2019.

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.

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"Under this assumption, GDP growth is still expected to remain subdued at 1.1%".

From 2018, the European Commission will revert to publishing two comprehensive forecasts (spring and autumn) and two interim forecasts (winter and summer) each year, instead of the three comprehensive forecasts in winter, spring and autumn that it has produced each year since 2012.

"Given the ongoing negotiation on the terms of the United Kingdom withdrawal from the European Union, projections for 2019 are based on a purely technical assumption of status quo in terms of trading relations between the EU27 and the UK".

The closure of the second review in June 2017, together with the stronger-than-expected growth in the euro area and a favourable tourist season, are expected to strengthen the economy in the remainder of the year.

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