In the early part of 2018, the economy of the eurozone appears to be in very good shape after its GDP grew by 2.5 percent in 2017. This was the highest growth witnessed since a 3.4 percent increase in 2007 before the financial crisis hindered economic growth on a global scale. The higher growth rates also helped bolster the currency, as the euro’s value increased by 0.6 percent on a quarter on quarter basis in 2017 Q4 from its 2016 mark.
Economists and policy makers have been skeptical about the growth of the Eurozone after it sent was reeling from the effects of the recession and the Greek debt crisis. However, as the confidence of investors has begun its recovery and the European Development Bank has provided monetary stimulus, the economy is making progress again. More recently, the election of Emmanuel Macron in France has had a very positive effect. After years of economic stagnation due to complex labor laws, Macron’s agenda was a breath of fresh air for investors. Macron had promised to reform labor laws and give tax breaks to businessmen and entrepreneurs. In September, 2017, he signed decrees that made it easier for firms to employ people and dismiss them without too many legalities. This has led to a decrease in unemployment. Next, in October, the French Parliament adopted a budget that reduced wealth taxes by 70%. Moreover, the budget proposed a flat tax rate of 30 % on capital gains, dividends and interests. These steps have produced an environment conducive to increased private and business investment and have helped spur greater economic growth in France. Because France is a major economy in the region, its recovery has spilled over into its neighboring economic partners.
However, there are a lot of political challenges to be faced in 2018 that could threaten the fragile state of the economic recovery. Elections will be held in Italy on March 4, where the eurosceptic, anti-immigration Five Star Movement is leading all the polls. Moreover, according to the Bank of Italy, the government owes a public debt of 2.3 trillion euros, but no party has made this problem its priority. Additionally, negotiations over Brexit have stalled as the EU and UK disagree on crucial issues like the status of EU citizens in UK and the island's contribution to EU projects from the UK budget in subsequent years. Finally, in Germany, Chancellor Angela Merkel is ruling with shaky coalition. The voters of Christian Democratic Union (CDU) are not happy with the concessions Merkel made to form this government, and the Social Democratic Party (SPD) also think that its reputation was damaged by the previous coalitions. Furthermore, Alternative for Germany (AFD) is the main opposition party now and is heading several committees. This difficult balance could hinder the government controlling the Eurozone's largest economy, which may impact its ability to navigate the uncertain times approaching.
Despite all these uncertainties, analysts are hopeful that the economic growth in 2017 will have a carryover effect this year, and the area will continue to see furthered economic progress.