Euro zone growth to slow this year, inflation subdued

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 per cent this year, less than the 1.7 per cent 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 per cent, down from a 1.9 per cent estimate three months ago.

Consumer prices are also expected to increase by less than previously estimated. They are now seen up 0.2 per cent this year, significantly below the 0.5 per cent 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 per cent. In 2017, inflation is expected to be at 1.4 per cent, 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.

Among the main economies of the euro zone, Germany's GDP is projected to grow 1.6 per cent this year and in 2017, less than the previous estimate of a 1.8 per cent growth in each year and of 1.7 per cent expansion in 2015.