- Populist parties did not triumph in elections across Europe in 2017, but popular disaffection with mainstream parties will persist.
- The main question in the September 24 federal election in Germany is not who will win the largest share of the vote, but which party or parties will join the likely winner, the Christian Democratic Union (CDU), in a new coalition.
- The Economist Intelligence Unit expects the Brexit negotiations between the UK and the EU to result in a deal in March 2019 on a transitional period lasting up to two years, but the risk that negotiations will break down is significant.
- The collapse of Iceland's government in September 2017 is the latest example of how increased political fragmentation is making it more difficult to form stable governments and implement policy.
- We expect EU sanctions on Russia to be maintained and for relations with Russia to remain difficult.
- If the UK economy remains resilient to Brexit uncertainty, there is a chance that the Bank of England will reverse the post-referendum interest rate cut of 0.25%. If growth momentum slows, however, the prospects of a rate rise will fade.
- We expect the monetary stance to remain exceptionally loose across much of the rest of the region. We do not expect the European Central Bank (ECB) to increase policy rates by 2021.
- There could be some rebalancing of the mix between monetary and fiscal policy in the euro zone as governments seek to respond to voter dissatisfaction. However, the bloc's rigid fiscal rules could make this a contentious process.
- Economic reform has progressed well in some countries, notably the Baltic states, Spain and Ireland, but for most the main challenges lie ahead. With political fragmentation on the rise, policymaking is becoming more difficult.
- We expect a growth slowdown in the UK in 2017-19 as Brexit negotiations heighten uncertainty, before growth accelerates in 2019-21.
- We forecast a pick-up in average real GDP growth in the EU28 to 2.1% in 2017 and an average of 1.7% in 2018-21.
Business environment rankings
- The business environment has improved in most European countries as the post-crisis economic recovery has gathered pace. However, fragilities remain.
Euro area: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, Spain
Old EU15: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, UK
New EU13: Bulgaria, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovenia, Slovakia (Croatia is currently not included in the data)
EU28: EU15 plus EU13