By Francesco Guarascio
BRUSSELS (Reuters) – Euro zone growth will be slower than previously expected with subdued inflation this year, the European Commission said in its economic forecasts on Tuesday, warning of high external and internal risks to the bloc’s economy.
The gross domestic product (GDP) of the 19-country currency area is predicted to expand 1.6 percent this year, less than the 1.7 percent growth of 2015 and also 0.1 percentage points below its February forecast, the EU executive said.
Next year the GDP is projected to expand 1.8 percent, down from a 1.9 percent estimate three months ago.
Consumer prices are also expected to increase by less than previously estimated. They are now seen up 0.2 percent this year, significantly below the 0.5 percent increase forecast in February by the Commission.
The figure is an improvement compared to flat inflation in 2015, but is still far from the European Central Bank target of an inflation close to 2 percent. In 2017, inflation is expected to be at 1.4 percent, the Commission forecast.
“The economic recovery in Europe continues but the global context is less conducive than it was,” Commission Vice President Valdis Dombrovskis said.
The EU executive warned of external risks for the European economy caused by the possibility of slower growth in China and other emerging economies, worsening geopolitical tensions and abrupt moves in oil prices.
“Future growth will increasingly depend on the opportunities we create for ourselves,” Dombrovskis said, urging euro zone states to step up efforts to carry out structural reforms.
The Commission also warned of increased risks associated with domestic EU developments, including uncertainty ahead of the British referendum in June on its EU membership.
GERMANY TO SLOW DOWN
Among the main economies of the euro zone, Germany’s GDP is projected to grow 1.6 percent this year and in 2017, less than the previous estimate of a 1.8 percent growth in each year and of 1.7 percent expansion in 2015.
The Commission also revised down its forecast for Italy’s GDP growth this year to 1.1 percent, below the 1.4 percent increase estimated in its last forecasts released in February. The GDP forecast for 2017 was unchanged at 1.3 percent. In 2015 Italy grew 0.8 percent.
The Commission forecasts are less optimistic than the Italian government’s which estimated the domestic economy to grow 1.2 percent this year and 1.4 percent in 2017.
Forecasts for France were unchanged, projecting expansion of the economy of 1.3 percent in 2016 and 1.7 percent next year, from 1.2 percent in 2015.
Greece, which is under a euro zone bailout programme, is expected to be the only euro zone country in contraction this year with GDP projected to decline 0.3 percent in 2016, after the -0.2 percent estimated for last year.
But the Commission has revised up its forecasts for the Greek economy, which was previously seen declining by 0.7 percent this year. In 2017 the Greek GDP is expected to grow again, with an estimated 2.7 percent increase.
(Reporting by Francesco Guarascio; editing by Philip Blenkinsop)