Tuesday 03 May 2016 11:34 am

European Commission trims growth forecasts and warns on EU referendum

By: Jake Cordell

Growth and inflation will remain weak for the rest of the year, the European Commission has said as it cut its outlook for the continent in its quarterly economic forecast, released today, and warned Brexit could knock growth even further

The Eurozone area will grow by 1.6 per cent this year – down from a prediction of 1.7 per cent made in February.

Inflation will come in at just 0.2 per cent this year – a sharp revision from the forecast of one per cent at the end of 2015.

A slowdown in the world economy, leading to weak demand for Eurozone goods and services was blamed as the main reason for the slowdown, while officials also said slow implementation of structural reforms from EU members could be holding back growth.

Eurozone: Latest forecasts

Despite the weak outlook, the Commission said that the European Central Bank (ECB)’s stimulus package was helping.

“Very accommodative monetary policy has set the scene for a pick-up in investment by making access to funding easier and cheaper,” the Commission said.

Pierre Moscovici, commissioner for economic and financial affairs, added: “Growth in Europe is holding up despite a more difficult global environment. There are signs that policy efforts are gradually delivering more jobs and supporting investment.”

However, “the recovery in the euro area remains uneven,” Moscovici said, “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.”

The forecasts will be seen as a disappointment given that just last week official figures confirmed the Eurozone economy grew faster than the United Kingdom or the United States in the first quarter of the year.

The Commission also warned that “uncertainty ahead of the UK’s EU referendum on 23 June” could see growth prospects fare “differently than currently envisaged.”