Tuesday 25 February 2014 8:35 am

EC ups Eurozone growth outlook but slashes inflation forecast

The European Commission just published its winter economic forecasts, with stronger economic growth and lower inflation projected for most of the Eurozone and EU generally.

Growth is stronger in every large European economy except Italy, and still projected to rise in Greece, which would end a recession that has run since 2008.

Olli Rehn, the European Commissioner for Economic and Monetary Affairs, is giving the European Parliament a lesson in the importance of language. While higher prospects for growth show that the recovery is “gaining ground”, cuts to the outlook for inflation merely show that price pressures “remain subdued”.

The forecast itself says there is only a “marginal probability of shocks large enough to initiate outright EU or euro-area wide deflation”, but below-target inflation is expected for the foreseeable future. In the euro area, consumer price inflation of just 1.3 per cent is projected for 2015.

Spain saw some of the largest revisions to both projected GDP and projected price growth: 0.5 per cent growth has been upgraded to one per cent, and inflation is now only expected to rise by 0.3 per cent, rather than the 0.9 per cent suggested three months ago.

Against what German finance minister Wolfgang Schauble suggested in January, the commission concedes the potential damage of below-target inflation for peripheral Europe:

A protracted period of very low inflation increases the real value of both public and private debt and results in higher real interest rates, making the ongoing internal adjustment in a number of member states more difficult and the deleveraging process more challenging.