The euro area economy is set to grow at its fastest pace in a decade this year, with real GDP growth forecast to reach 2.2 pct, according to the European Commission’s Autumn 2017 Economic Forecast. This is substantially higher than that expected in the spring forecast for 2017 (1.7 pct).
The EU economy as a whole is also forecast to beat expectations and attain robust growth rates of 2.3 pct this year (up from growth forecasts of 1.9 pct in the spring).
Greece’s economy is growing again, and the recovery is expected to strengthen as investment rebounds and consumption growth rises. The labour market is recovering fast and unemployment is expected to decline further, although average wages may increase only gradually. Public finances remain on track to meet the primary surplus targets agreed under the ESM programme.
Real GDP in Greece grew by 0.5 pct (q-o-q) in both the first and second quarters of this year (in seasonally-adjusted terms), corresponding to a rise of 0.6 pct (y-o-y) for the first half of 2017.
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 boost the economy in the remainder of the year. In the third quarter of 2017, sentiment indicators rose to levels not seen in a number of years, confirming that the closure of the second review was well received by households and companies alike.
Real GDP is expected to grow by 1.6 pct in 2017 and 2.5 pct in both 2018 and 2019. The forecast revision for 2017 reflects mainly the weaker-than expected performance of private consumption in the first half of the year. On the back of a marked improvement in business and consumer sentiment and an improving labour market, both private consumption and investment activity are forecast to be robust in the second half of the year, and to continue to perform well in 2018. A benign external environment is expected to boost net exports, which should thereby contribute to growth this year and the next. This positive outlook is expected to benefit the current-account balance, with moderate surpluses forecast for the coming years.
The labour market performed better than expected, with the unemployment rate falling to 21 pct in July, down from an annual average of 23.6 pct in 2016.
According to quarterly national accounts data, employment rose by 1.5 pct y-o-y in the first half of 2017, suggesting that the labour market continues to improve faster than the economy as a whole.
Consumer price inflation is expected to reach 1.2 pct in 2017, mainly as a result of the rebound in energy prices, increases in indirect taxation and with average wages recovering moderately.
Headline inflation is expected to decelerate in 2018 as the base effects from taxation and energy price increases fade away and are not fully compensated by an increase in core inflation.
The forecast assumes a smooth completion of the third programme review and an orderly closure of the ESM stability support programme in 2018.
Any delay in this process would be harmful for the recovery. Furthermore, there is a risk of a possible under-execution of the public investment budget in 2018, which would hinder overall investment growth as well.
The effective stabilisation of the economic and policy environment brought about by the conclusion of the second review has strengthened the fiscal policy outlook for this year and over the medium term.
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.