Economic Pressure in European Politics
Jan. 5, 2018
The European Continent experienced political volatility this year amid presidential elections, independence disputes and Brexit negotiations. Chancellor Merkel secured a fourth term at the head of Germany, providing confidence in staying the current course as opposed to the prospect of new leadership and policy uncertainty. Despite this, GDP growth in Germany is forecast to fall from 2.0% in 2017 to 1.8% in 2018, likely to be dragged down by the overall performance of the Euro Area.
Spain suffered from a major political crisis as Catalonia’s regional government declared independence in October, following what was a banned referendum. Fresh regional elections were conducted by the central government in an attempt to get ahead of the secession drive; however, the separatist parties won most of the seats in the house, which is expected to draw the conflict well into 2018. Regarding the economic outlook, the IMF expects GDP growth of 3.1% in 2017 and 2.5% in 2018, falling in-line with the expectations of lower growth out of the Euro Area; however, the actual growth for 2017 is likely lower on the back of the cost of the crisis.
Economic activity in the UK flows more than anticipated in the first half of 2017, leading the IMF to call for 1.7% growth in 2017. While a formal agreement has yet to be signed and finalized, the European Union (EU) and UK have made “sufficient progress” in Brexit negotiations, according to recent reports. As we come to the close of January 2018, negotiations are expected to enter a transition period as the EU wants it to take place under current rules and regulations with an expectation that the transition will end at the end of 2020. According to the IMF, the UKC is likely to feel some economic pressure through this period as GDP growth is projected to fall to 1.5% in 2018 and only slightly recover to 1.7% in 2022.
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