Euro zone GDP to grow moderately in 2016, 2017: Commission

[February 04, 2016]  By Francesco Guarascio

BRUSSELS (Reuters) - Euro zone economic growth will slightly accelerate this year and next, the European Commission estimated on Thursday, but the pace will be slower in 2016 than previously forecast because of increased global risks.

The gross domestic product (GDP) of the 19-country single currency bloc is expected to expand by 1.7 percent this year from 1.6 percent in 2015. The recovery will gain speed in 2017 with economic expansion of 1.9 percent, the EU executive said in its winter economic forecasts.

The growth estimate for this year is a slight downward revision of the 1.8 percent seen in the last set of forecasts in November. The 2017 figure was unchanged.

External factors are seen as the main risks to the euro zone economy that will continue to grow mostly because of domestic consumption.

"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," Commission Vice President Valdis Dombrovskis said in a statement.

Low oil prices, cheap credit and the weak euro will continue to boost euro zone growth, but will be offset by a "disorderly adjustment" in China and the possibility of higher interest rates in the United States.

All national economies of the euro zone are expected to grow this year, with the exception of Greece where GDP will drop by 0.7 percent, albeit a lesser decline that the 1.3 percent decrease forecast by the Commission in November.

The Greek economy will return to growth in 2017 with an expected 2.7 percent expansion. "These are the good signs that some stabilization is already happening," EU's Economics Commissioner Pierre Moscovici told a news conference, warning however against complacency in the reform agenda.

Germany's economy, the euro zone's largest, will grow 1.8 percent this year and next, compared with November forecasts of 1.9 percent. It also will continue recording large current account surpluses, exceeding the 6 percent limit recommended by the EU institutions.

Growth forecasts in 2016 for France and Italy - the second- and third-largest economies of the euro zone - were also revised slightly downward to respectively 1.3 and 1.4 percent.

Ireland is set to post the highest growth among all 28 EU countries, with an estimated expansion of the economy of 4.5 percent in 2016. The forecast marks a slowdown from the 6.9 percent growth estimated in 2015, but was welcomed by the Commission as it averts fear of possible bubbles, Moscovici said.

INFLATION TO REMAIN LOW

Cheap oil will continue suppressing consumer prices, with euro zone inflation seen at only 0.5 percent this year, the Commission said.

In its last forecast released in December, the European Central Bank had put inflation at 1 percent in 2016, but has later said its estimates were to set to be cut.

The Commission sees consumer prices growing by 1.5 percent in 2017, slightly below the ECB forecast of 1.6 percent, and still off the ECB's target of just under 2 percent.

Unemployment rates in euro zone countries will continue to fall but at a slower rate and the bloc's average will stay just above 10 percent during the forecast horizon.

(Reporting by Francesco Guarascio; editing by Philip Blenkinsop)

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