The European Commission has raised its 2017 growth forecast for the eurozone and expects the 19-country bloc to grow by 2.2 percent this year - its fastest pace in a decade.
With the growth forecast for 2017 slashed by 0.3 percent, it also expects the United Kingdom economy to only grow marginally over the next two years - by 1.3 percent in 2018 and by 1.1 percent in 2019, the year Brexit is now scheduled to happen.
With current surveys already suggesting that heightened uncertainty is weighing on business investment in the United Kingdom, the EC report forecast investment growth will weaken in 2018, as many firms are likely to continue deferring investments in the face of uncertainty. For the next two years, the Commission forecasts decrease in employment growth to 0.4% and 0.3% due to limited labour supply. It is gloomier about the outlook than the Bank of England, which expects growth of 1.7% in both years.
The EC said growth this year is supported by private consumption and rebounding investment.More news: Catalan leader Carles Puigdemont turns himself in to Belgian police, report says
Growth in the European Union economy as a whole is expected to be at 2.3% in 2017, slightly higher than in the U.S., where growth is expected to reach 2.2%, and Japan, on track to grow at 1.6%. "The government deficit is moving closer to balance but risks to the fiscal outlook remain". "Growth should remain strong and broad-based this year".
"Consumption growth is projected to be modest, in line with weak real wage growth, while uncertainty continues to weigh on business investment".
"The government's fiscal stimulus this year - supported by stronger exports, a significantly depreciated Turkish lira in comparison with last year and a strong boost from public finances and other policy incentives, meant to restore confidence in the Turkish economy", the bloc's economic report said.
A favourable relocation of financial services operators linked to the process of the United Kingdom leaving the European Union could also affect GDP growth, particularly in 2019. "The period of unpredictability could be extended if some creditors decide to oppose the outcome of the settlement, which should be reached by mid-2018", said the Commission.More news: Sony is crafting a rewards scheme based around PlayStation's trophy system
He also noted that the current growth cycle is characterised by "less output" than previous cycles, and that "a sluggish wage growth partly reflects low productivity growth and persistent slack in [the] labour market".
The EC warned that Hungary's labor market is becoming "increasingly tight" and said price pressures are expected to grow over the forecast horizon.
The main factor behind this year's growth is set to be external demand, with domestic demand coming in second because of a significant contraction in investment.
Unit labour costs are projected to rise faster than the euro-area average in 2018 and 2019.More news: Fire Department: When setting back clock, replace alarm batteries
United Kingdom growth slowed down this year - to 1.5 percent from 2.3 percent in 2015 and 1.8 percent in 2016 - because higher prices led to lower consumption.