Eurozone growth revised upward, while Brexit risk looms

By Staff, with files from The Associated Press | February 7, 2018 | Last updated on February 7, 2018
3 min read

The European Commission says the recovery across the 19-country eurozone is set to remain fairly buoyant this year.

In its latest forecast, the European Union’s executive arm said it expects 2018 growth to be 2.3%, just shy of the 2.4% rate it is predicting for 2017—preliminary figures last week from the EU’s statistics agency showed the eurozone growing by even more in 2017, by 2.5%.

In 2019 the Commission is predicting 2% growth.

Read: Is the eurozone out of the debt crisis?

Economic Affairs Commissioner Pierre Moscovici said “the euro area is enjoying growth rates not seen since before the financial crisis” and noted a “meaningful” rise in investment.

In weekly commentary, Richard Turnill, global chief investment strategist for BlackRock, says he’s overweight European equities: “We see sustained above-trend economic expansion and a steady earnings outlook supporting cyclicals.” On the downside, “Euro strength is still playing out in company results and could cause more pain.”

The Commission said eurozone growth could exceed expectations in the short term, but that uncertainties over Brexit and geopolitical tensions might slow things down in the medium term.

Read: Synchronized global growth favours equities, but risks lie in wait

Hard Brexit a challenge for banks

A top European financial supervisor warned Wednesday that banks both in Britain and the European Union need to be ready for a so-called hard Brexit, in which the U.K. leaves the bloc without a transitional period to ease the changeover.

Under a hard Brexit, Britain would exit the 28-country EU and its free-trade zone completely when the deadline arrives in March 2019. That means banks headquartered in London would lose their automatic right to do business throughout the rest of the bloc. A transition period could provide time for banks to adjust to new rules of trade.

“We cannot be sure whether the transitional period will really happen,” said Sabine Lautenschlaeger, the vice-chair of the European Central Bank’s banking supervisory board. “Banks must continue to prepare for any outcome, including a hard Brexit.”

Prime Minister Theresa May’s government is preparing to negotiate new terms of trade with EU officials, and it remains unclear whether the parties will agree on transitional arrangements or make an abrupt break.

Lautenschlaeger said at a news conference in Frankfurt, Germany, that banks that want to relocate from London to the 19 EU countries that use the euro currency should have submitted their licence applications already. She said eight banks have already applied and four others have indicated they plan to substantially increase their activities in the 19-country currency union. Britain has been a member of the EU but not of the euro.

She said that depending on how Brexit negotiations go, banks might get more time to relocate—but only those that have already presented “credible plans” to do so.

She said eurozone banks that want to do business in Britain also need to get ready for Brexit by submitting licence applications to the British supervisor, the Prudential Regulatory Authority.

Lautenschlaeger warned banks that want to move that they cannot simply set up a shell company in the eurozone. “Banks must be real banks if they want to operate in the euro area,” she said.

Also read:

Canada, U.S. won’t drive global growth over next two years: Scotiabank

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Staff, with files from The Associated Press

The Associated Press is an American not-for-profit news agency headquartered in New York City.