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EU Boosts Eurozone Growth & Inflation Outlook On Positive Tailwinds

EuropeanCommission 050515

The eurozone economy is set to grow more than estimated earlier and inflation is likely to gain momentum later this year, the European Commission said on Tuesday, citing positive economic tailwinds such as low oil prices, steady global growth, a weaker euro and supportive economic policies.

In its Spring 2015 Economic Forecast, the executive arm of the European Union lifted the Eurozone growth forecast for this year to 1.5 percent from the 1.3 percent seen in February. At the same time, the outlook for 2016 was retained at 1.9 percent.

The growth forecast for the EU this year was raised to 1.8 percent from 1.7 percent. The projection for the next year was maintained at 2.1 percent.

"Europe's economies are benefiting from many supporting factors at once. Oil prices remain relatively low, global growth is steady, the euro has continued to depreciate, and economic policies in the EU are supportive," the Commission said.

"On the monetary side, quantitative easing by the European Central Bank is having a significant impact on financial markets, contributing to lower interest rates and expectations of improving credit conditions."

Growth will be driven by domestic demand, with an acceleration of private consumption expected this year and a rebound of investment the next year, the report said. The level of uncertainty surrounding the economic outlook remains high, but overall risks to the outlook appear broadly balanced, the Commission said.

"The European economy is enjoying its brightest spring in several years, with the upturn supported by both external factors and policy measures that are beginning to bear fruit. But more needs to be done to ensure this recovery is more than a seasonal phenomenon," Pierre Moscovici, European Commissioner for Economic and Financial Affairs, Taxation and Customs, said.

"Delivering on investment and reforms and sticking to responsible fiscal policies are key to obtaining the lasting jobs and growth Europe needs."

Among the big four Eurozone members, Germany's growth forecast for this year was lifted to 1.9 percent from 1.5 percent and the outlook for the next year was retained at 2 percent.

The growth projection for France this year was raised to 1.1 percent from 1 percent, while the outlook for the next year was cut to 1.7 percent from 1.8 percent.

Italy was forecast to emerge from recession this year with 0.6 percent growth, which was unchanged from February. The projection for the next year was boosted to 1.4 percent from 1.3 percent.

The growth forecast for the Spanish economy was raised sharply to 2.8 percent this year from 2.3 percent. The outlook for 2016 was raised to 2.6 percent from 2.5 percent.

Among all euro area members, Ireland and Malta were projected to log the biggest growth rate of 3.6 percent apiece this year.

Outside the euro area, the UK's growth projections for this year and the next were retained at 2.6 percent and 2.4 percent, respectively.

Meanwhile, Greece's growth forecast for this year was slashed to 0.5 percent from 2.5 percent. The embattled country's outlook for the next year was lowered to 2.9 percent from 3.6 percent. The economy exited a prolonged recession last year.

The inflation projection for the eurozone this year was lifted to 0.1 percent from a negative 0.1 percent predicted earlier. The outlook for the next year was raised to 1.5 percent from 1.3 percent.

Due to the effects of the fall in energy prices, the Commission said inflation is expected to remain close to zero in the first half of this year.

"Consumer prices should, however, pick up in the second half of the year and even more so in 2016 as domestic demand strengthens, output gaps narrow, the effects of lower commodity prices fade, and the depreciation of the euro triggers higher import prices," the report said.

The EU, meanwhile, cut the unemployment forecast for the euro zone for this year to 11 percent from 11.2 percent, citing the spread of labor market improvements across sectors. The projection for 2016 was also lowered to 10.5 percent from 10.6 percent. Greece was forecast to top the list for unemployment in both the years.

Eurozone budget deficit forecast for this year was also lowered to 2 percent of GDP from 2.2 percent seen earlier. The deficit-to-GDP ratio projection for the next year was cut to 1.7 percent from 1.9 percent. Spain and France were projected to log the biggest deficit ratios in both the years.

The Commission noted that the fiscal outlook in both the EU and the euro area continues to improve, thanks to the adjustment efforts of recent years, stronger economic activity and lower interest payments on outstanding public debt.

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