"Growth prospects for advanced economies outside the European Union have improved over recent months, largely due to expectations of fiscal stimulus in the United States, which have resulted in higher long-term interest rates and an appreciation of the U.S. dollar". Meanwhile, investment contracted, compared to its extraordinary levels in 2015, in particular in non-residential construction and machinery and equipment.
Private consumption is set to be the main engine of growth although rising inflation will erode household buying power offsetting rising rates of consumption. Furthermore, the economic expansion is forecast to continue at a broadly unchanged pace in 2017 and 2018. "It is expected to decrease further over the forecast horizon, on account of these dynamics, supporting a renewed improvement in the current-account", says the EC. And the impact the Trump administration will have on the EU's economy is still unclear.
The successful launching of the Malta Development Bank could lead to more dynamic investment in the medium term. Skills shortages are expected to put pressure on wage growth.
The European Commission welcomed, on the other hand, Italy's commitment to meet its request for an adjustment to reduce its structural deficit. Annual employment growth slowed down in the third quarter, but another decline in the labour force contributed to the further reduction in the unemployment rate - which, at 23.4% (average, third quarter) remains high, however.
"With uncertainty at such high levels, it's more important than ever that we use all policy tools to support growth", said EU Financial Affairs Commissioner Pierre Moscovici, alluding to EU and national government support packages that have seen an increase since the days of strict austerity. The Commission predicted in January that the new adjustments could help Spain bring its deficit to 3.3% of GDP in 2017, and 2.8% in 2018. Fiscal policy is expected to remain supportive to domestic demand growth in 2017 and 2018, as the government plans sizeable increases in both transfers and capital expenditure, compared to the 2016 outturn, in a continued low-tax environment.
"The fiscal deficit and the public debt ratio are projected to decline, but the government's commitment to fiscal consolidation may be tested by the end of the International Monetary Fund programme and the upcoming elections", the EU's executive body said.
Unemployment is expected to continue falling from 8.5% in 2016 to 8.1% in 2017 and to 7.8% in 2018 in the 28-member bloc.