As the euro area economy continues to grow at its fastest pace in a decade, surpassing expectations, the EU Commission forecasts growth of 2.2 per cent this year, up 0.5 per cent on predictions in the spring.
The European Commission said in its autumn economic forecast on Thursday that "Italy's economic recovery accelerated in 2017, supported by external and domestic demand, but fading tailwinds and lower medium-term growth prospects are expected to moderate growth". It also expects a continued decline in public debt, which should amount to 80.3 percent of GDP this year, 77.4 percent next year, and 74 percent in 2019.
However, Pierre Moscovici, the commissioner for economic and financial affairs, warned that while both the eurozone and the wider European Union are expected to grow in 2018 and 2019, "challenges remain in the form of high debt levels and subdued wage increases". Nonetheless, this was bigger than the 1.8 percent forecast previously. Economic growth and job creation are robust, investment is picking up and government deficit and debt are gradually decreasing.
From 2018, the European Commission will revert to publishing two comprehensive forecasts (spring and autumn) and two interim forecasts (winter and summer) each year, instead of the three comprehensive forecasts in winter, spring and autumn that it has produced each year since 2012.
The report states that growth was pushed by "resilient private consumption, increasing support from a global upswing, loose financing conditions and healthy improvements in the labour market".
The increase follows the International Monetary Fund upping Turkey's 2017 growth forecast 2.6 percentage points on October 10, the World Bank raising its forecast 0.4 percentage points on October 19 and the European Bank for Reconstruction and Development's [EBRD] lifting it by 2.6 percentage points on November 7.
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In 2017, the government balance is projected to remain in surplus, at 0.9% of GDP.
In its report, the European Commission points out that growth in the first half of this year remained "surprisingly strong", and that the impact of the restructuring process in Agrokor, the largest private employer, was smaller than expected. Yet challenges remain in the form of high debt levels and subdued wage increases.
Unemployment across the currency union is expected to drop faster than expected in May, dipping to 9.1% by year-end and then to 8.5% in 2018 and 7.9% the following year. Wage dynamics are still constrained and inflation dampened because of slow productivity growth and a slack in the labour market.
"Based on a purely technical assumption of status quo in terms of trading relations between the EU27 and the United Kingdom, growth is still expected to remain subdued over the forecast horizon".
However, overall current revenue growth is predicted to slow down next year, due to expected lower income from the citizenship scheme.