By Mark Fairlie
Last year, the European Union economy experienced its fastest growth in over a decade, according to figures from the EU statistics office Eurostat.
Registering an increase of 2.5% from the year before, this is the highest annual growth since the 2.7% economic expansion of 2007.
In the EU executive’s 2017 Autumn Report, it was predicted that the economy would exceed previous expectations and finish the year with a “robust growth of 2.3%”. However, as it surpassed even these optimistic forecasts by 0.2%, the European economy performed far better than originally predicted.
Where is the growth coming from?
Good economic results were seen across every single one of the 28 EU countries. However, the continent’s powerhouse states, including Germany and France, showed a considerably strong performance over the last year; displaying levels of growth not seen since the financial crisis bounce back in 2010.
In 2017, Germany stood as the largest economy in Europe, accounting for 21% of the total GDP for the EU. Behind them, making up 15% of the continent’s value was France, followed by Italy at 12% and Spain at 8%.
Despite its slowed growth due to Brexit negotiations, the United Kingdom made up 16% of GDP in the economy in the past year.
It is believed that this growth has been fuelled by resilient private consumption, with household spending accounting for 57% of GDP expenditure across the European Union, according to Trading Economies.
Government expenditure accounted for 21% of GDP used, with imports and exports making up the rest of the EU’s total.
Brexit and the UK economy
Early estimates of last year’s performance from the Office of National Statistics showed that Britain’s own economy grew 1.5% year-on-year in the fourth quarter of 2017. This occurred much more quickly than was previously expected, with the nation’s most dominant sector – services – said to be responsible for the increase.
Services account for around 80% of the UK’s total output and, propelled by various business finance and finance, increased revenue by 0.6% in the last year alone.
According to Darren Morgan, head of GDP at the ONS,
“the boost to the economy at the end of the year came from a range of services including recruitment agencies, letting agents and office management.
“Other services – notably consumer-facing sectors – showed much slower growth. Manufacturing also grew strongly but construction again fell.”
However, the nation’s growth remaining so heavily reliant on a single industry was greatly contrasted by the EU’s more evenly distributed growth reported across all sectors. As the chief eurozone economist at Pantheon Macroeconomics, Claus Vistesen, noted, much of the Eurostat data confirmed: “that the expansion in the Eurozone is broad-based across all the economies.”
And, despite the very reasonable levels of growth for the UK, they still fall far behind those seen within the European Union. Last year, the Eurozone’ economy outgrew the UK for the first time since 2010; reaching 2.7% against Britain’s 1.5% growth.
How will growth in the EU affect the UK?
Growth in the EU is still good news for the UK as nearly half of all British exports are bought by consumers and businesses in member states.
As the UK is currently within the single market and customs union, it can still continue to benefit from tariff-free access to the EU for the time being. As Brexit negotiations continue, this relationship is set to change but no-one is sure just how yet.
Despite this, according to the Financial Times, UK exports of goods and services are expected to grow by 3.1% in 2018. However, this still falls 1.4% lower than the forecast for the EU.
European Commissioner for Economic and Financial Affairs, Pierre Moscovici, stands firm that “Brexit will not derail European growth”, whereas British economist Lord Jim O’Neil has stated that EU growth is very likely to protect the UK from the immediate impact of Brexit.
He went on to say that “maybe this [better global growth] means the country’s going to be able to cope with Brexit better than certainly, somebody like me might have thought some time ago.”