MOSCOW (Sputnik) — The new US administration's policies and the United Kingdom's impending departure from the European Union are the two main risks weighing down on the upturn in Europe's economy, the European Commission's Winter Forecast warned on Monday.
The forecast's tone was overall positive, noting picking up growth and employment, with GDP expected to increase between 2016 and 2018 in all EU members states through 2018.
"For the first time in almost a decade, the economies of all EU Member States are expected to grow throughout the entire forecasting period (2016, 2017 and 2018). However, these forecasts are surrounded by higher-than-usual uncertainty," the forecast's summary said.
This contrasts with an expected global expansion of 3.2 percent last year, 3.7 percent this year and 3.9 next year.
Brexit and unpredictable politics across the Atlantic were highlighted as the chief risks which could negate all factors buoying Europe's economy.
"There is increasing evidence that the exceptional strength of the supportive factors has started to fade even as Europe faces numerous challenges. Uncertainty is rising to an extraordinarily high level, driven by the uncertain outcome of the UK’s ‘Brexit’ negotiations and by upcoming elections in a number of large Member States," the commission said.
The United Kingdom is set to start the negotiations in March at the latest. After triggering Article 50 of the Lisbon Treaty in March, the UK government will proceed to hammer out a post-Brexit trade deal with Europe, the final clauses of which are highly uncertain.
Trump's presidency also has some upside risks as the new president had promised a "huge" fiscal stimulus for the US economy which would be invested in infrastructure and public services. The details of the stimulus are yet to be revealed, but the European Commission forecasts Trump to spend some 0.3 percent of US GDP on the measures this year and 1 percent next year. The impact of the stimulus may be relatively small but will be enough for US growth to outpace Europe, reaching 2.3 percent this year, as well as possibly boosting the global economy by more than expected.
Additional risks are upcoming elections in a number of EU states this year. Right-wing populism has been on the rise on the back of the migrant crisis and a weak economic performance over the past several years. Right-wing parties are doing well in the polls in the run up to elections in France and the Netherlands, as well as a possible snap election in Italy. The German federal election is said to be less uncertain.
The commission noted the resilience of Europe's economy throughout the turbulent 2016, which saw major security threats and terrorist attacks, a severe migrant crisis and a number of geopolitical shocks such as Brexit and the election of Trump as the new US president.
Global trade also stagnated as countries rolled out protectionist measures at the highest rate since the global recession of 2008 and a number of international trade deals, including one planned between Europe and the United States, became suspended in limbo or were scrapped.
"This resilience has been supported by a number of well-known favourable factors, including the relatively low oil price, the past depreciation of the euro, accommodative monetary policies and a broadly neutral fiscal policy stance," the forecast said.
The resilience is also driven by individual member states' policies but mainly depends on consumption, while being deeply undercut by chronic underinvestment, a factor likely to undermine growth in the longer term, according to the European Commission.
UNEMPLOYMENT AND INVESTMENT
"Investment is set to continue growing but only moderately, supported by a number of factors such as very low financing costs and strengthening global activity… However, the share of investment in GDP remains below its value at the turn of the century (20% in 2016 compared to 22% in 2000-2005). This persistent weakness in investment casts doubt over the sustainability of the recovery and the economy's potential growth," the report said.
Investment is, however, expected to grow about twice as fast as the EU economy, expanding 2.9 percent this year and 3.4 percent in 2018, thus slightly increasing its share of GDP.
The European Union has a massive youth unemployment problem, with figures at almost 20 percent across the bloc's 28 nations, according to Eurostat.
"Unemployment among these groups remains at very high levels, suggesting less reactivity to cyclical improvements," the paper said.
A peak of 24 percent was reached in 2012-2013. The crisis is particularly pronounced in southern Europe, including Italy and Spain, where the figures reach into the 50-percent zone.