Investing.com - The European Commission raised its forecasts for growth and inflation for the euro zone on Monday, despite what it called 'exceptional risks' from Brexit, upcoming European elections and the new administration in the U.S.
In its new winter forecast, the EC said it now expects the euro area economy to grow by 1.6% this year, up from 1.5% in its autumn forecast.
Growth is expected to accelerate to 1.8% in 2018, up from 1.7%.
The Commission raised its euro zone inflation forecast to 1.7% this year from 1.4% previously.
Unemployment is also forecast to keep falling from its current high levels, the report said.
The EC said it expects the unemployment rate to average 9.6% this year, down from 10% last year, and then fall to 9.1% in 2018.
The EC said it expects the UK economy to slow sharply as Brexit negotiations get underway.
Growth in the UK economy is expected to slow to 1.5% this year, from 2.0% in 2016, before slowing again to 1.2% in 2018.
“The impact of the vote by the UK to leave the EU in the referendum held on 23 June 2016 on growth has yet to be felt. Recent momentum is projected to largely continue in the first quarter...[but] ease notably thereafter,” the forecast said.
The EC also said it expects the annual rate in inflation in the UK to hit 2.5% this year, as the steep drop in the pound since the Brexit vote pushes up the cost of living.
The report said that the global recovery is expected to gain momentum, largely due to expectations of fiscal stimulus in U.S., which have resulted in higher interest rates and a stronger U.S. dollar.
Growth in emerging market economies is also set to firm up to 2018, the EC said.
But the report noted that there is a particularly high level of uncertainty surrounding its latest forecast due to the still-to-be-clarified intentions of the Trump administration, as well as the numerous elections to be held in Europe this year and the upcoming Brexit negotiations.