The European Commission on Thursday marginally downgraded its euro area growth and inflation projections as risks from the slowdown in China and other emerging markets, falling oil prices and the weak global trade escalate.
Nonetheless, the single currency bloc entered its fourth year of recovery and moderate growth is forecast to continue, driven by consumption.
In the Winter 2016 Forecast, the EU projected 1.7 percent growth for the euro area this year, a notch lower than the 1.8 percent estimated previously. However, the figure was better than the 1.6 percent growth estimated for 2015. The projection for 2017 was maintained at 1.9 percent.
“Europe’s moderate growth is facing increasing headwinds, from slower growth in emerging markets such as China, to weak global trade and geopolitical tensions in Europe’s neighborhood,” Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, said.
The EU noted that risks to the economy are becoming more pronounced and new challenges are surfacing.
Among big-four nations, Germany’s growth is forecast to be 1.8 percent in both 2016 and 2017. Economic growth continues to be driven by domestic demand, supported by favorable labor market and financing conditions.
French growth is expected to remain moderate, as investment is projected to pick up only gradually and net exports to remain a drag on growth. According to EU, GDP growth will improve to 1.3 percent in 2016 before accelerating to 1.7 percent in 2017.
Italy’s economy is set to gain momentum in 2016 and 2017 as domestic demand strengthens, the commission said. The 2016 growth is forecast to be 1.4 percent and 2017 growth at 1.3 percent.
In Spain, growth is set to ease but remain robust, underpinned by sustained job creation, better financing conditions, high confidence and low oil prices, EU said. The growth is projected at 2.8 percent for 2016 and 2.5 percent for next year.
Consumer price increases are expected to remain very low in the first half of the year and should 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 was forecast at only 0.5 percent instead of 1 percent projected in November.
Inflation is expected to pick up to 1.5 percent next year as higher wages, higher domestic demand and a moderate pick up in oil prices raise price pressures. Nonetheless, it reflects a downward revision from 1.6 percent.
Employment in the 19-nation bloc continues to rise and unemployment rates continue falling. The member countries where labor market reforms have been implemented would see more pronounced decline, the agency observed.
The euro area unemployment rate is expected to fall to 10.5 percent in 2016 and 10.2 percent in 2017.
Published: 2016-02-04 11:26:00 UTC+00
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