Top Stories
Top Stories
World Economy

We forecast a soft landing for China: Moscovici

When will lower oil benefit Europe?
Euro zone GDP to grow by just 1.7% in 2016

China should experience a soft landing, European Commissioner Pierre Moscovici told CNBC on Thursday, after slower growth in world's second-largest economy was named as a risk that could affect growth in Europe. Meanwhile the dwindling price of oil would help consumption-led growth in the economy.

We are very conscious of the risks and we are closely monitoring what's happening in China although our basic scenario is that seeing a soft landing in China, " Moscovici, the commissioner for Economic and Financial Affairs, Taxation and Customs, said.

"Our basic scenario is that growth in China is slowing down but we think that this very strong economy has the capacity to successfully face the transition from a previous model based on production to a model based on consumption and services," he said.

"Of course we need to have in mind all possible other scenarios whether if it is a hard landing or financial instability but our assumption is that a soft landing is on its way."

His comments come after the European Commission published on Thursday its latest economic forecasts for the region in which it forecast "moderate" growth in 2016, warning of increasing major challenges and risks to the growth outlook.

The euro zone is expected to grow 1.7 percent in 2016 (from 1.6 percent last year) and 1.9 percent in 2017, with expansion driven mainly by consumption.

"Certain factors supporting growth are now expected to be stronger and last longer than previously assumed," the Commission said in its report.

"They include low oil prices, favorable financing conditions and the euro's low exchange rate. At the same time, risks to the economy are becoming more pronounced and new challenges are surfacing: slower growth in China and other emerging market economies, weak global trade as well as geopolitical and policy-related uncertainty," it added.

Moscovici noted there were upside and downside risks to certain factors, such as oil prices.

Unkel/ullstein bild | Getty Images

While German gross domestic product (GDP) was expected to grow 1.8 percent in 2016, France by 1.3 percent, Italy by 1.4 percent and Spain by 2.8 percent, there was one obvious loser in the forecasts.

The only country whose economy is expected to shrink was Greece's. After flat growth in 2015, the Commission forecasts Greek GDP to contract 0.7 percent in 2016. Next year looked brighter for the recession-hit country that almost crashed out of the euro zone last year, with 2.7 percent growth forecast in 2017.

The forecasts come amid a fledgling recovery for euro zone countries although some countries like France are lagging behind their counterparts Germany and Spain.


There are a number of significant bugbears for the region including pockets of high unemployment – in Greece and Spain, for example, where the jobless rate is stubbornly high.

On Thursday, the Commission said that unemployment rates are set to continue falling in 2016, "albeit at a slower pace than last year." It said the decline should be more pronounced in Member States where labor market reforms have been implemented, such as Italy and France.

The unemployment rate in the euro area is expected to fall from 11 percent in 2015 to 10.5 percent in 2016 and 10.2 percent in 2017.

Another acute worry for policy makers is the euro zone's low inflation rate (a sign of consumer demand and a good indicator of the health of the general economy) which has largely been blamed on low oil prices reducing energy costs.

Still, even when stripping out volatile prices like unprocessed food and energy, the latest euro zone inflation figures for December showed that core inflation stood at 0.8 percent year-on-year. The rate is a far cry from the 2 percent target aimed at by the European Central Bank (ECB) which has embarked on a quantitative easing (QE) program that should increase lending in the economy, boost growth and inflation.

The Commission reported that a further decline in oil prices would "temporarily" drive down inflation but consumer price increases would "start picking up in the second half when the impact from the sharp fall in oil prices abates."

For 2016 as a whole, euro area annual inflation is now forecast at only 0.5 percent, partly because wage growth remains subdued. Asked if the ECB, which is led by Mario Draghi, should increase the bank's stimulus program to boost inflation, Moscovici said he had faith in the bank and its president.

"I really trust Mr Draghi, I think that he's a very strong central banker and that he has all the parameters in his head and that he said recently that he was determined to use all his tools and he has a lot of tools to address this issue."

- CNBC's Nancy Hulgrave contributed reporting to this story.

Follow CNBC International on and Facebook.