Growth is accelerating in the eurozone, reflecting the region’s broad cyclical recovery, though the pace of growth may slow next year, according to a new report from Fitch Ratings.
Factors that have supported growth include a reduction in political risk following the French elections, a rise in business confidence and improvement in export demand. Unemployment this June reached an eight-year low, which boosted consumer confidence. Policy support for the economy also has gained ground, with credit standards for loans to businesses easing this year.
Fitch raised its 2017 GDP growth forecast for the region to 2.0% from 1.7% in June. Growth is expected to slow to 1.8% in 2018. As the benefits in the drop in energy prices wear off, consumption demand is expected to decrease as well. In addition, negotiations surrounding Brexit and questions over U.S. trade policy create uncertainties over international trade.
Fitch expects growth potential in the medium term will be constrained for major economies by 2019 due to demographic and productivity trends, as well as a narrowing of output gaps. Near term, however, growth in the region should remain above the potential rates seen in recent quarters. Growth potential in advanced economies is expected to fall in the range of 1.25% to 1.75% over the next five years, Fitch said.
– Adam Fusco, associate editor