By Viktoria Dendrinou
BRUSSELS--The European Union will grow less than previously forecast in 2017, the bloc's executive arm said on Wednesday, warning of risks to the bloc's economy brought on by political uncertainty and a backlash against globalization.
In its first economic forecasts since the U.K.'s June vote to leave the EU, the European Commission, the EU's executive arm, said the bloc's modest recovery would continue, but at a slower pace than originally foreseen.
In its projections, published three times a year, the commission said growth in the 28-country EU was expected to be 1.8% this year, in line with earlier forecasts. But it slashed its forecast for 2017, and now expects growth of 1.6% --0.3% lower than forecast earlier this year. In 2018, the bloc is expected to grow 1.8%.
The commission said that risks to the forecast have risen in recent months and "are clearly tilted to the downside," including as a result of the U.K. vote to leave the EU, "which has raised uncertainty and can be seen as an indicator of heightened policy risks in the current volatile political environment."
Political uncertainty has been on the rise in various parts of the EU, ranging from the U.K.'s Brexit vote, to a rise in anti-European sentiment ahead of key elections in the Netherlands, France and Germany next year.
"At a global scale, geopolitical uncertainties are pervasive, and the 'new backlash against globalization' has given rise to protectionist tendencies and political uncertainties with economic risks in their trail," said Marco Buti, the commission's top economist.
Meanwhile, the economy of the 19-country eurozone is expected to grow 1.7% this year--slightly than higher previously forecast. But the forecasts for 2017 see 1.5% growth for the common-currency area, lower than the 1.8% previously forecast. The currency bloc's economy is expected to grow by 1.7% in 2018.
"In the first months since the UK's referendum on EU membership, the euro area economy seems to have shrugged off the result, but the sharp increase in policy uncertainty associated with it is expected to persist and to weigh on economic activity over the entire forecast horizon," the commission said.
The commission said it expects the U.K. economy to grow slowly in the coming years as it charts its exit from the EU. It now forecasts growth will slow to just 1.0% in 2017--almost half the 1.9% forecast in May--this year as uncertainty over Britain's future ties to the EU weighs on spending and investment.
The British economy is expected to pick up again in 2018, with growth accelerating slightly to1.2% on the year, the commission said.
But it said it expects inflation to accelerate past the Bank of England's 2% annual target next year, to 2.5%, and to 2.6% in 2018, as a falling pound pushes up import prices. Unemployment in the U.K., currently at 4.9%, is forecast to rise to 5.6% by 2018.
The commission now expects the rate of inflation in the eurozone to be 0.3% this year, slightly up the 0.2% previously forecast. In 2017, inflation in the currency union is now seen higher at 1.4%, and 1.8% in 2018, nearing, but still below, the close-to-2% targeted by the European Central Bank.
Unemployment in the 19-country bloc is expected to fall from 10.1% this year to 9.7% in 2017 and 9.2% in 2018, a slightly improved outlook over earlier forecasts. In the EU, unemployment is seen at 8.6% this year, and falling to 8.3% next year and 7.9% in 2018.
The EU's official forecasts, which come out three times a year, serve as the foundation for budget negotiations between EU authorities in Brussels and the bloc's governments.
The EU introduced new and stricter fiscal rules in 2013 to prevent a repeat of the sovereign-debt crisis. They allow Brussels to review budgets before they are submitted to national parliaments and to ask for changes in their spending plans.
Laurence Norman in Brussels and Jason Douglas in London contributed to this article.
Write to Viktoria Dendrinou at email@example.com
(END) Dow Jones Newswires
November 09, 2016 10:41 ET (15:41 GMT)
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