EC raises growth forecasts as oil prices dip

Frankfurt

THE European Commission raised its euro-area growth forecasts and cut its inflation outlook as cheaper energy proves both a blessing and a curse for the currency bloc's economy.

Gross domestic product (GDP) in the euro area will rise by 1.3 per cent in 2015 and 1.9 per cent next year, up from November projections of 1.1 per cent and 1.7 per cent, the European Union's executive arm in Brussels said. It predicts consumer prices will drop 0.1 per cent this year, marking the first annual decline since the introduction of the euro in 1999, before increasing 1.3 per cent in 2016. The European Central Bank (ECB) aims to keep inflation just below 2 per cent.

ECB president Mario Draghi has warned that the slump in the cost of oil could lead to a deflationary spiral of falling prices and households postponing spending, a risk that prompted the central bank to commit to asset purchases of at least 1.1 trillion euros (S$1.7 trillion). At the same time, cheaper energy bolsters economic activity as it leaves consumers and c…