Roundup: European Commission lowers eurozone, EU GDP growth forecasts

The European Commission on Tuesday further lowered its forecast for economic growth across the 19-country eurozone and the 28-country European Union (EU), while insisting Europe's economic recovery was staying the course amid high risks.

According to the European Commission's spring 2016 economic forecast, real gross domestic product (GDP) in 2016 is now expected to rise 1.6 percent in the EU and 1.8 percent in the euro area, both 0.1 percentage points lower than projected three months ago.

For 2017, the Commission forecasts a growth of 1.9 percent in the EU and 1.8 percent in the euro area, also both 0.1 percentage points lower than previous predictions.

The report attributed Europe's modest growth to the slowdown of its key trading partners' performance, saying that some of their supportive factors had started to wane.

Economic growth is set to rise or remain broadly stable in most EU countries, but growth will remain uneven across the EU, the report noted.

"We have much more to do to tackle inequality," said Pierre Moscovici, EU commissioner for economic and financial affairs, taxation and customs.

"The recovery in the euro area remains uneven, both between member states and between the weakest and the strongest in society. That is unacceptable and requires determined action from governments, both individually and collectively," he added.

Eurozone net exports were expected to remain a drag on growth in 2016 before turning neutral in 2017 the Commission said, adding growth would therefore depend on domestic demand.

Investment is to pick up next year, rising to 3.8 percent in both the eurozone and the EU, and private consumption will be moderate as the expected rebound in inflation will reduce real income growth.

However, unemployment in the eurozone will remain high. This year, the jobless rate was expected to be at 10.3 percent and then fall to 9.9 percent in 2017.

In the EU as a whole, unemployment was expected to fall from 9.4 percent in 2015 to 8.9 percent in 2016 and 8.5 percent in 2017, the forecast said.

Over the forecast horizon, both government deficit and debt ratios are projected to remain on a downward slope. However, European countries have been unable to narrow deficits and scale back debt to EU-agreed limits.

The general government deficit in the eurozone as a whole is expected to decrease from 2.1 percent of GDP in 2015 (2.4 percent in the EU) to 1.9 percent in 2016 (2.1 percent in the EU) and 1.6 percent in 2017 (1.8 percent in the EU), the Commission predicted.

Meanwhile, the debt-to-GDP ratio is forecast to continue declining gradually from the peak of 94.4 percent in 2014 to 91.1 percent in the eurozone in 2017, still much higher than the maximum allowed level of 60 percent determined by the Stability and Growth Pact, a set of rules designed to make sure EU members "pursue sound public finances and coordinate their fiscal policies."

In the EU, the general government debt-to-GDP ratio is forecast to decline to 86.4 percent in 2016 and to 85.5 percent in 2017.

Inflation will remain close to zero in the near term as energy prices are lower than a year ago. Consumer price inflation in the eurozone has fallen into negative territory in April, and was forecast to stand at 0.2 percent in 2016 and 1.4 percent in 2017, a figure still way off the targeted roughly 2 percent set by its central bank.

The Commission warned that risks associated with domestic EU developments remained considerable, "with regards to the pace of implementation of structural reforms and the uncertainty ahead of the UK's EU referendum."

Commission Vice President Valdis Dombrovskis urged for stepping up structural reform efforts to address long-standing problems in many countries, including high levels of public and private debt, vulnerabilities in the financial sector or declining competitiveness.

"Decisive policy action to reform and modernize our economies is the only way to ensure strong and sustainable growth, more jobs and good social conditions for our people," he said. Endit