European Commission raises GDP growth forecasts

The report suggests a deal could be completed by November 2018

However, citing slowing employment growth, lower increases in real disposable incomes and moderating investment growth, the commission said Eurozone growth would moderate slightly over the forecast horizon, to 2.1 percent in 2018.

"Real GDP growth is expected at 4.2 percent in 2017 and 3.8 percent in 2018, before decelerating to 3.4 percent in 2018, with a growing positive demand gap, driven by domestic demand".

In its autumn economic forecast, the Commission said the Grand-Duchy's economy would expand by 3.4% this year and then by 3.5% and 3.3% in 2018 and 2019, respectively.

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".

The country with the lowest growth rate this year will be Italy - 1.5 percent - ahead of an uncertain electoral year.

EU officials hope the dynamic economy will help ambitious reform drives by European Commission chief Jean-Claude Juncker and French President Emmanuel Macron to deepen economic integretaion in the eurozone.

In its previous forecasts in May, the Commission counted on only a 1.9 percent growth this year and next year.

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"The external sector is expected to remain solid, supported by an improved external environment, especially in the euro area", the Commission said in its section on Luxembourg.

"Growth in private consumption will be modest and uncertainty will continue to weigh on business investment decisions", Mr. Moscovici said.

EU commissioner Pierre Moscovici said: "After five years of moderate recovery, European growth has now accelerated". Moreover, structural convergence and the strengthening of the euro area are necessary to make it more resilient to future shocks and to turn it into a true motor of shared prosperity.

But conditions remain favourable and the latest indicators point to an increasing momentum in the second half of the year, according to the report. Spain's economy is predicted to expand by an impressive 3.1 percent this year, falling back to 2.5 percent and 2.1 percent over the next two years - even without any impact from Catalonia's independence movement, which has prompted Madrid to impose direct rule on the region and arrest many of its leaders. By contrast, diminishing uncertainty and improving sentiment in Europe could lead to stronger-than-forecast growth, as could stronger growth in the rest of the world. United Kingdom unemployment is projected to rise from 4.5% to 4.8% by 2019, while inflation eases from a peak of 2.7% to 2.1% in two years.

"This is for forecasting purposes only and has no bearing on the talks underway in the context of the Article 50 process".

As a result United Kingdom economic growth is seen slowing to 1.3% in 2018 before slumping to 1.1% in the year of Brexit.

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