Inside Financial Markets

Eurozone cuts 2017 growth outlook after Brexit

The European Union on Wednesday edged up its eurozone growth forecast for this year but trimmed it for 2017, warning that the economy faced new challenges due to Brexit and rising inequality. Brussels also nearly halved its economic growth outlook for Britain itself next year due to uncertainty over the country’s vote to leave the bloc.

Pointing to increased global risks for the 19-country single currency area as shown by the shock victory of Donald Trump in the United States, the European Commission said economic growth this year would reach a modest 1.7 percent. The commission also said that eurozone growth would slow to 1.5 percent growth next year, as the negative effects of Britain’s looming divorce from the EU began to be felt more deeply. “In these volatile and uncertain times, no effort must be spared to safeguard and strengthen this recovery – and ensure that all sections of society feel its benefits,” said EU Economics Affairs Commissioner Pierre Moscovici.

Asked about the impact of the Trump vote in the US, Moscovici stressed the need to boost economic recovery. “The frustration expressed in the US clearly echoes that of European voters,” Moscovivi said. “Many of our citizens feel excluded from the economic recovery and many of them feel disconnected from government,” he said. Inflation, long stuck near negative territory, would accelerate sharply, the commission said, as rising oil prices began to lift consumer prices.

The commission said inflation in the eurozone would hit 1.4 percent in 2017, up from an expected 0.3 percent for 2016. This will come as a relief to the European Central Bank which has embarked on a controversial stimulus programme to get inflation nearer to the official target of close to 2.0 percent.

Growth in all 28 EU nations would hit 1.8 percent in 2016, the commission said, with a drop to 1.6 percent next year. The EU nearly halved its economic growth outlook for Britain in 2017 due to the impact of the Brexit vote to leave the bloc. It is set to edge up again to 1.2 percent in 2018.

Growth in the UK was projected to fall to 1.0 percent from 1.9 percent in 2016 “reflecting the impact of heightened uncertainty following the referendum”, the commission said. Britain voted to leave the EU in a referendum on June 23, with the government expected to trigger two years of divorce negotiations in March of next year.

The “UK ‘leave’ vote … has raised uncertainty and can be seen as an indicator of heightened policy risks in the current volatile political environment,” the commission forecast said. Greece will be the only eurozone member in recession this year with a contraction of 0.3 percent as fallout from debt crisis continued to affect the economy.

But the economy would turn around sharply to 2.7 percent expansion next year, the commission said. Growth in Ireland and tiny Malta would lead the single currency zone with a 4.1 percent expansion this year. The Commission forecasts also cleared the air for France, which will achieve enough growth this year to reduce its deficit to 2.9 percent of GDP, just inside the EU’s three percent limit, according to the estimate.

Baqar Hussain

A Wannabe CFO, just had stepped in the corporate sector, willing to explore every aspect here and learn as mush as i can, awareness for those who dont, get the info where ever possible and stay up to date always.

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)