BRUSSELS (Reuters) - The euro zone will slightly step up its economic recovery in the next two years despite lower demand for European exports in China and other emerging markets, the European Commission said on Thursday in its latest economic forecasts.
The euro zone is expected to grow 1.6 percent in 2015, with modest acceleration of gross domestic product (GDP)to 1.8 percent in 2016 and 1.9 percent in 2017, the EU executive said on Thursday.
"The European economy remains on recovery course," the EU Commissioner for economic affairs, Pierre Moscovici, said in a statement.
But he also warned that "major challenges remain", as exports of European products are expected to slow down and wars and tensions persist in the region around Europe.
The expansionary monetary policy carried out by the European Central Bank and the decline of oil prices have driven euro zone growth in 2015. However, this positive impact is fading, the Commission predicted, as it slightly reduced the 2016 growth forecasts from its previous estimates in May, when it predicted a 1.9 percent GDP rise in the euro zone.
Although divergences remain among the 19 countries sharing the euro, economic growth is now widespread with only Greece still in recession. Cyprus, Finland and Italy had seen contraction in 2014.
Germany, the euro zone strongest economy, will continue to grow, although at a slower pace than previously predicted, while Italy will see a faster increase of its GDP this year and in 2016.
The euro zone current account surplus will continue to increase in 2015, driven by Germany, but it is expected to narrow in next two years as oil prices are forecast to rebound.
The expected increase in oil prices is also seen as positive for the euro zone inflation, which will rise to 1 percent in 2016 from 0.1 per cent in 2015, although still far from the ECB target of close to 2 percent.
The fiscal outlook of the euro zone is also expected to improve as some countries reduce their public deficits and debts, although France will maintain a deficit above the limits set by EU rules also in 2017, and Italy's debt is expected to rise in 2015 to 133 percent of GDP.
