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European Commission Cuts 2016 Eurozone Growth & Inflation Forecasts

Eurozone's economy is set to expand at a slower pace than that expected earlier as the impact of positive factors such as falling oil prices, expansionary monetary policy and a weaker euro fades, while new challenges such as emerging market slowdown emerge, the European Commission said Thursday.

In its Autumn 2015 forecast, the executive arm of the European Union said the euro area gross domestic product is set to grow by 1.6 percent this year, slightly faster than the 1.5 percent predicted in May.

The euro area economic recovery this year has been resilient and widespread, but has remained slow, the report said.

The commission lowered the projection for next year to 1.8 percent from 1.9 percent. "The impact of the positive factors is fading, while new challenges are appearing, such as the slowdown in emerging market economies and global trade, and persisting geopolitical tensions," the report said.

"Backed by other factors, such as better employment performance supporting real disposable income, easier credit conditions, progress in financial deleveraging and higher investment, the pace of growth is expected to resist the challenges in 2016 and 2017."

Further, the positive impact of structural reforms is also expected to support growth further in some countries.

Eurozone growth was projected to improve to 1.9 percent in 2017.

The commission retained its euro area inflation projection for this year at 0.1 percent, while it slashed the outlook for next year to 1 percent from 1.5 percent. Headline inflation was forecast at 1.6 percent in 2017.

The steep fall in oil and other commodity prices, which led inflation into negative territory in September, masked the fact that wage growth, strengthening private consumption and the narrowing of the output gap are beginning to add increasing pressure to prices, the report said.

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