1st LD-Writethru: EU nudges down GDP growth forecast for 2016

The European Union nudged down its economic forecast for the 19-country eurozone on Thursday as the bloc was suffering from slow economic recovery with lower-than-expected inflation and double-digit unemployment rate.

The gross domestic product (GDP) growth rate was predicted to stand at 1.7 percent for this year, down from the 1.8 percent it forecast three months ago, the EU's executive body, the European Commission, said in its winter forecast.

The growth of the single-currency was forecast to remain at 1.6 percent in 2015, 1.9 percent in 2017, both unchanged with its autumn forecast announced in November.

For the wider 28-country EU, the growth was predicted to be at 1.9 percent this year and 2.0 percent next year, weaker than its autumn forecast.

Low oil prices, favorable financing conditions and the euro's low exchange rate were expected to further benefit the bloc's growth. However, a global slowdown, worsening migrant crisis and geopolitical and policy-related uncertainty continued to pose risks, said the Commission.

"The European economy is successfully weathering new challenges this winter, supported by cheap oil, the euro rate and low interest rates," said Pierre Moscovici, the EU commissioner for economic and financial affairs, taxation and customs.

"Nonetheless, the weaker global environment poses a risk and means we must be doubly vigilant. There is more work to do to strengthen investment, enhance our competitiveness in a smart way and complete the job of fixing our public finances," Moscovici added.

The European economy was now entering its fourth year of recovery but the growth was still under a slow pace.

The unemployment rate in the euro area was expected to stand at 11 percent in 2015, 10.5 percent in 2016 and 10.2 percent in 2017. In the EU, the readings were 9.5 percent in 2015, 9 percent this year and 8.7 percent next year.

Annual inflation in the euro area was only slightly above zero towards the end of 2015. For 2016, the inflation was forecast at only 0.5 percent and to reach 1.5 percent in 2017, still lower than the targeted 2 percent set by its central bank.

In member states, economic output either increased or was stable in 2015, the Commission said. By 2017, the economies of all member states were expected to be expanding. GDP growth rates will, however, continue to differ substantially due to both structural features and different cyclical positions.

In the bloc's powerhouse Germany, GDP rose by 1.7 percent in 2015, according to provisional official data. The growth would continue to be driven by domestic demand, supported by favorable labor market and financing conditions. Public spending for asylum seekers would also provide an additional stimulus.

Terrorist attacks in Paris in November were expected to have a short-lived and limited dampening impact on the country's confidence and growth. As external trade was not expected to contribute positively, French GDP growth was set to gain traction slowly, reaching 1.3 percent in 2016 and 1.7 percent in 2017.

The recession in debt-torn Greece in 2015 appeared to have been less severe than expected. The Commission revised its estimate for Greek economic growth in 2015 upwards to 0 percent. However, real GDP was expected to contract by 0.7 percent in 2016, amid the negative carryover from 2015 and the faltering domestic demand in the first half of the year.

Steady implementation of structural reforms should gradually strengthen economic fundamentals, investment and other components of aggregate demand, leading to a projection of 2.7 percent for real GDP growth for 2017 in Greece. Endit