Daily Times

BRUSSELS: Brexit and Donald Trump have cast a shadow over the prospects for Europe’s further economic growth. That is the message from the European Commission which has delivered a cautious outlook for Europe in the coming 12 months.

The executive predicted that Europe’s economic recovery will continue, saying that euro area GDP will grow 1.6 percent this year and 1.8 percent next year. GDP growth in the European Union (EU) as a whole should follow a similar pattern and is forecast at 1.8 percent this year and next year. But the forecasting period covers 2016, 2017 and 2018 which coincides with Britain’s exit from the EU triggered by Article 50 in a few weeks.

It remains unknown if Britain will finally opt for a “hard Brexit,” one that will take it out of the single market and customs union, while a question mark also looms over the EU’s negotiating position. Other factors, including an unpredictable Trump in the White House and elections in France and Germany, have to be thrown into the equation. The result is that the economic outlook is “surrounded by higher-than-usual uncertainty,” said the commission.

“In these uncertain times, it is important that European economies stay competitive and are able to adapt to changing circumstances. This requires continued structural reform effort. We also need to focus on inclusive growth, ensuring that the recovery is felt by all,” said Valdis Dombrovskis, vice-president for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union.

With inflation picking up, the current monetary stimulus will not last forever, he warned. “Therefore countries with high deficit and debt levels should continue bringing them down to become more resilient to economic shocks.”

The mantra is repeated by Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, who noted that despite all its knocks, euro zone growth is holding up and deficits are heading lower.

“Yet with uncertainty at such high levels, it’s more important than ever that we use all policy tools to support growth.”

Article 50 is due to be triggered by the end of March, paving the way for Britain to leave the EU within a two-year time frame. But Peter Kramer, a senior Brussels-based analyst, said those who predicted economic apocalypse if the Brits voted for out on June 23 last year “were wrong.”

For Britain, the commission said despite resilience in the second half of 2016, economic growth is projected to moderate in 2017 and weaken further in 2018.

“The fact is that despite all the predictions of doom and gloom, in 2016 the UK was the fast growing major advanced economy in the world and left other G7 economies in the dust,” he said.

“Thanks to a stronger-than-expected fourth quarter, Britain notched up a 2-percent annual growth in 2016, truly below the 2.2 percent in 2015, but still enough to beat other major economies. The biggest driver was the services sector, and in particular consumer-facing industries such as retail sales and travel. There is no Brexit effect, at least no negative one.”

In response to the Commission 2017 Winter Forecast, James Watson, Economic Director at BusinessEurope, the umbrella body for European business, said “The commission’s 2017 Winter Forecast provides further evidence that the EU’s economic recovery is slowly gaining strength. But growth continues to be supported by a number of temporary factors, notably the ECB’ s expanded asset purchase program, and a relatively low euro effective exchange rate.”

“EU member states need to do much more to increase the implementation of structural reforms in order to improve underlying growth prospects and ‘lock-in’ the recovery,” Watson said.

Of course, Greece and its ongoing economic ills still loom large over the eurozone economy.

The recent second review of the economic adjustment program for Greece and the approval of yet further financial support for Athens, consisting of some 86 billion euros (90.9 billion US dollars), have caused anger in some quarters, including with German center right MEP Hans-Olaf Henkel.

“Further financial aid program for Greece is good money that is being thrown down the drain,” Watson said. “A high unemployment rate and the lack of economic prospects are good reasons for Greece to leave the eurozone as quickly as possible in order to become more competitive again.”