Economic growth in the European Union (EU) is increasingly solid, both in terms of its pace and composition. The European economy has entered its fifth year of recovery, which is now reaching all EU Member States. Private consumption remains the main driver of growth.
The prospects of investment becoming a second pillar of growth are also good, as a recovery in investment continues to benefit from very favorable financing conditions and improvements in corporate profitability. The recovery of credit to the private sector is proceeding. Moreover, the global recovery should increasingly lend support to trade.
The labor market continues to improve, though it remains uneven, and the employment rate has finally returned to pre-crisis levels. Large jobs deficits persist in some countries, notably in Southern Europe. In 2016, the rates ranged from around 4 percent in the Czech Republic and Germany to more than 20 percent in Greece.
Even in countries where employment has recovered, wage growth remains subdued. People with low and middle incomes have seen their wages stagnate, and the share of middle-skilled jobs has fallen - contributing to rising inequality and concerns that top earners are getting a disproportionate share of the gains from economic growth.
Sentiment has improved significantly over the last year. Growth expectations have brightened and broadened. However, the uncertainty concerning the duration of exit negotiations and an agreement on future relations between the EU and the United Kingdom (UK) – the so-called “Brexit” - are putting a strain on the European economy.
The pending regulatory requirements are immense and range from trade-related matters and access to the European single market (particularly important for the financial industry), to horizontal policies, such as migration and social policy, and domestic and security policies.
Euro optimism, in spite of Brexit, is rising. Eurosceptical populism has experienced a significant backlash - reflected in the election outcomes in the Netherlands and France. Support for the EU, which dipped significantly during the euro crisis, has recovered and received a further positive push in the aftermath of the Brexit vote.
The European Commission is calling for a number of key reforms to the Union's organization, including: the creation of a Europe-wide finance minister; a transformation of the European Stability Mechanism into a European Monetary Fund; and the creation of a dedicated euro area budget line within the EU budget.