European Union cuts United Kingdom growth forecast as eurozone motors ahead

The EU Commission predicts 2.2 per cent economic growth in the euro area this year, up 0.5 per cent on its earlier prediction.

Eurozone inflation is also expected to remain broadly flat at 1.5% in 2017, down from a 1.6% forecast previously, decelerating to 1.4% next year before rising marginally to 1.6% in 2019.

The current account surplus is forecast to be close to 10% of GDP for 2017, pushed by strong growth in exports, especially service, and a drop in imports related to the contraction in investment.

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. Monthly government statistics to date suggest that the 2017 general government primary balance target (1.75 pct of GDP in terms of the ESM programme definition) will be met, with the balance of risks tilted to the upside.

Growth has accelerated in 2017, with real GDP increasing by 5.8% on the year in the first half, the EC noted.

Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, said: "The EU economy is performing well overall". Serbia's underlying growth trend remains robust, and exports are seen as staying strong.

As a outcome of the fiscal easing, Romania's structural deficit is forecast to increase from an estimated 2.2% of GDP in 2016 to around 3.3% in 2017 and 4.3% in 2018.

The U.K.'s largely domestic-driven economy has been hit by accelerating inflation in the wake of the Brexit vote previous year, curtailing consumer spending. A benign external environment is expected to boost net exports, which should thereby contribute to growth this year and the next.

Consumer price inflation is expected to reach 1.2 pct in 2017, mainly as a result of the rebound in energy prices, rises in indirect taxation and with average wages recovering moderately.

The country with the lowest growth rate this year will be Italy - 1.5 percent - ahead of an uncertain electoral year. On the other hand, public investment was cut significantly in the September's budget rectification, the Commission said. "Strong public investment growth is expected at the end of 2017 and beginning of 2018 due to the higher use of EU Structural Funds".

The commission stressed that its post-Brexit economic forecasts were based on a purely technical assumption of status quo in EU-U.K. trade relations.

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