Eurozone to grow at healthy 2.2%, but UK will slump to 1.5%: EU

The European Commission enters key Brexit talks with the eurozone economy in its best shape for a decade and activity in the UK weaker than expected six months ago.

In its half-yearly health check, the commission on Thursday sharply cut its forecast for UK growth this year and said it was likely to continue struggling in 2018 and 2019 even on the assumption that trade would not be disrupted by its departure from the European Union.

The EU sharply raised its eurozone growth forecast for 2017, confident that the economic recovery was gathering pace despite the uncertainties of Brexit.

The 19-country eurozone will grow by 2.2 per cent in 2017, its fastest pace in a decade, the European Commission said in its autumn economic forecasts. This was substantially higher than the previous forecast of 1.7 per cent and comes just after the EU's latest GDP growth figures resoundingly beat expectations.

The commission said dark clouds that did exist included the outcome of Brexit talks between EU and Britain as well as geopolitical tensions between the US and North Korea.

Britain saw its outlook for 2017 slashed due to "uncertainty" over Brexit.

Forecasts produced by economists in Brussels said the UK economy would grow by 1.5 per cent this year rather than the 1.8 per cent predicted when the last assessment was made in May.

The International Monetary Fund is expecting UK growth of 1.7 per cent this year, while the Organisation for Economic Cooperation and Development (OECD) is forecasting growth of 1.6 per cent.

"After five years of moderate recovery, European growth has now accelerated," EU Economy Commissioner Pierre Moscovici said. "We see good news on many fronts, with more jobs being created, rising investment and strengthening public finances."

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 forecasts, the European Commission said growth in 2018 would edge lower to a still strong 2.1 per cent, followed by 1.9 per cent in 2019.

All eyes were on France, where French President Emmanuel Macron has pushed through controversial reforms to cut spending and loosen rules on hiring and firing in the jobs market.

The EU predicted these reforms would benefit the economy, with French growth to hit 1.6 per cent this year, up from the earlier 1.4 per cent.

The Commission also said that the French deficit this year would fall under the EU's limit of 3.0 percent of annual GDP.

France's debt was still high at 96.9 percent and would remain at that level through 2019.

The outlook was positive for Spain despite the crisis over Catalonia, with its growth foreacast upgraded to a robust 3.1 per cent for this year, leading the eurozone's major economies.

The EU was also bullish on Ireland, with the commission saying Irish economy will continue to grow at more than twice the EU average this year despite the pace of expansion slackening slightly.

Irish GDP growth is forecast to moderate from 5.7 per cent in the first half of 2017 to full-year growth of 4.8 per cent.

The EU said the 28-nation bloc as a whole would grow by 2.3 per cent in 2017, followed by 2.1 per cent in 2018.

But the report was especially sour for non-euro Britain which saw its growth forecast for 2017 slashed to 1.5 per cent. The economy would slow even further to 1.3 per cent in 2018, followed by 1.1 per cent in 2019.

The positive data for the eurozone come after the European Central Bank (ECB) announced last month it was starting to wind down the massive support it has given the 19-member currency zone to help it through the crises of recent years, in view of the "increasingly robust and broad-based economic expansion".