February 7, 2018 / 12:52 PM / in 9 months

Euro zone economy to slow slightly this year and next: Commission

BRUSSELS (Reuters) - Euro zone economic growth is likely to slow slightly this year and next from its fastest expansion in a decade last year, the European Commission forecast on Wednesday, adding however that it saw inflation picking up marginally next year.

In an interim economic forecast for gross domestic product growth and inflation for all the members of the 28-nation European Union, the Commission said growth in the 19 countries sharing the euro would be 2.3 percent in 2018 and 2.0 in 2019.

The European Union’s statistics office Eurostat estimated last month that euro zone growth was 2.5 percent in 2017.

“This is a result of both stronger cyclical momentum in Europe, where labor markets continue to improve and economic sentiment is particularly high, and a stronger than expected pick-up in global economic activity and trade,” the Commission said.

“Strong demand, high capacity utilization and supportive financing conditions are set to favor investment over the forecast horizon,” it said in a statement.

The Commission said risks to the growth forecast were broadly balanced, although growth could exceed expectations in the short term because of the upbeat economic sentiment.

“Downside risks related to the uncertain outcome of the Brexit negotiations remain, as do those associated with geopolitical tensions and a shift towards more inward looking and protectionist policies,” the Commission said.

Assuming unchanged trade relations between Britain and the EU after Britain leaves the block in March 2019, the Commission forecast Britain’s economic growth would slow to 1.1 percent next year from 1.4 percent this year and 1.8 percent in 2017.

“The slowdown has been driven primarily by a decline in private consumption growth, due to a squeeze on real disposable incomes,” the Commission said, noting inflation rose sharply in 2017 following the 2016 depreciation of sterling.

“Private consumption growth in 2018 is expected to remain subdued alongside continued elevated inflation. Business investment growth also remains relatively weak despite very favorable conditions, as heightened uncertainly is weighing on business investment,” it said.

Reporting By Jan Strupczewski, Editing by William Maclean

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