European Commission: "New challenges" for European economy in 2016 including China, emerging markets and geopolitical tension

James Nickerson
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Growth continues at a moderate rate (Source: Getty)

Much of the world economy is grappling with huge challenges which are increasing risks to European growth, the European Commission has said.

In a report titled "Winter 2016 Economic Forecast: Weathering new challenges", the European Commission said the European economy is entering its fourth year of recovery, but that the risk growth could turn out worse than forecast has risen.

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European economic growth is forecast to remain stable at 1.9 per cent this year and rise to two per cent next year.

The report points out that the increased risk is due predominantly to external factors, including slower growth in China and other emerging markets, weak global trade and geopolitical and policy-related uncertainty.

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The possibility that further interest rate rises in the US could cause disruption in financial markets or hurt vulnerable emerging economies also weigh on the European economic outlook.

However, the report also points out a number of factors that are supporting growth that are now expected to be stronger and last longer than previously assumed including low oil prices, favourable financing conditions and the euro's low exchange rate.

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