EU Commission cuts euro zone GDP growth forecast

The European Commission on Tuesday cut its 2016 growth forecast for the euro zone economy.

It now sees euro zone gross domestic product (GDP) in 2016 at 1.6 percent from a previous forecast of 1.7 percent growth. It also lowered its 2017 forecast to 1.8 percent from 1.9 percent.

European Commissioner Pierre Moscovici told a press conference that there would be "stable growth" this year but that the recovery could be faster.

"European growth is holding up and (that) means that the efforts being made are paying off," he said. "(But) it's time to speed things up," he said.

Arc of Triomphe Paris, Champs-Elysees France at night
vichie81 / iStock / Getty Images Plus
Arc of Triomphe Paris, Champs-Elysees France at night

"European growth is sustained because it is still driven by household consumption whereas investment which had been lagging behind, but this should recover in 2016-2017," he said.

He said that financial market volatility at the start of the year had not helped the region's economy and that an economic slowdown in China still posed a risk.

For the wider European Union (EU) economy, the Commission forecast a GDP expansion of 1.8 percent in 2016. However, it said in its report that growth was "expected to remain modest as key trading partners' performance has slowed and some of the so far supportive factors start to wane."

"Very accommodative monetary policy has set the scene for a pick-up in investment by making access to funding easier and cheaper. Fiscal policy in the euro area is expected to be supportive of growth this year. But although oil prices fell again in early 2016 and prolonged the boost to real disposable incomes, the strength of this support should gradually fade as the oil price rebounds," the report noted.

"Similarly, although euro area exports are still benefiting somewhat from the euro's past depreciation, the currency's recent rise could make the euro area more susceptible to the effects of slower external growth."

The European Central Bank (ECB) is the key actor in trying to stimulate growth and inflation in the euro zone with consumer prices falling again in the region in April as data on Friday showed.

The European Commission forecast on Tuesday that the rate of inflation would remain subdued, at 0.2 percent in 2016.

"It is expected that inflation remains close to zero in the near term as energy prices are lower than a year ago," the Commission said. "External price pressures are also weak amid a slightly appreciating euro and rather subdued global producer prices."

It said that inflation should rise "more significantly" in the second half of this year as energy prices gradually pick up and domestic prices increase on the back of strengthening domestic demand. As such, it forecast consumer price inflation at 1.4 percent in 2017.

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