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EU slices growth forecasts for 2014

[BRUSSELS] The EU cut sharply its growth forecasts for the eurozone on Tuesday, warning that France and Italy remain huge problems for the sluggish European economy.

According to the European Commission's autumn economic forecasts, output in the 18-nation eurozone will grow by only 0.8 per cent this year, instead of the earlier prediction of 1.2 per cent.

The growth outlook for 2015 is also much lower, cut down to 1.1 per cent from an earlier forecast of 1.7 per cent.

While the figures show the eurozone economy avoiding a triple-dip recession for now, they will renew global concerns about its sluggish recovery from the euro debt crisis that nearly sank the single currency three years ago.

"The economic and employment situation is not improving fast enough," said Jyrki Katainen, the commission's vice president for jobs and growth in a statement announcing the bleak numbers.

Also haunting Europe is the danger of deflation, and while the commission believes prices will not fall outright, it said inflation will remain very low and also drag on growth.

The commission said inflation in the eurozone this year would sink to a "very low" 0.5 per cent this year and rise only to 0.8 per cent next year. Both forecasts are way off the European Central Bank target of just under two per cent.

In its breakdown of all the EU member states, France and Italy stand out as the biggest problems for a struggling European economy.

Those two countries are under huge pressure from the commission to cut back on government overspending and push through reforms that Rome and Paris have promised but largely failed to implement.

In its dire forecasts, Brussels said the public deficit in France would surge to 4.5 per cent of total GDP in 2015 and keep widening to 4.7 per cent in 2016, making it the biggest in the eurozone.

These figures are way off the EU's limit on public deficits of 3.0 per cent of output and if left unaddressed, could lead to the commission imposing humiliating penalties on the already fragile government of French President Francois Hollande.

Italy meanwhile is burdened with the EU's biggest mountain of government debt, and the commission expects this will remain more than double the EU's limit if 60 per cent of output in the coming years.

Italy will have a debt of 133.8 per cent of output in 2015 and slip only very slightly to 132.7 per cent in 2016, according to the commission's forecasts.