EU slashes Greece growth outlook

The EU on Tuesday sharply slashed its growth outlook for Greece this year due to its ongoing battle with its international creditors, dampening an otherwise improved outlook for the eurozone.

The Greek economy slumped severely in the first three months of the year, the European Commission said in its Spring forecasts, cutting its overall 2015 growth outlook for Greece to 0.5 percent, a huge reduction from its earlier prediction of 2.5 percent.

The sharp downturn in the state of the Greece economy will heap even more pressure on the radical leftist government of premier Alexis Tsipras to come to terms with its EU-IMF creditors, who are demanding radical reforms that Athens is so far refusing.

"In light of the persistent uncertainty, a downward revision has been unavoidable" for Greece, Pierre Moscovici, the EU's Economic Affairs Commissioner, told a news conference.

The EU predicted a strong rebound of 2.5 percent in 2016 for Greece but stressed that all its predictions were based on the assumption that Athens would reach a deal with its creditors when the extension of its current international bailout runs out at the end of June.

Greece's debt, already the highest in the eurozone, would meanwhile soar to 180.2 percent of annual economic output this year, before falling slightly to 173.5 percent in 2016, the EU said.

- 'Brightest spring' -

For the rest of the eurozone, cheaper oil and a weak euro led the EU executive to predict that the currency bloc would grow 1.5 percent in 2015, better than the 1.3 percent predicted in February.

"The European economy is enjoying its brightest spring in several years, with the upturn supported by both external factors and policy measures that are beginning to bear fruit," said Moscovici, a former French finance minister.

"But more needs to be done to ensure this recovery is more than a seasonal phenomenon."

The Commission forecast that the currency bloc would avoid much feared deflation this year, with consumer prices rising an albeit low 0.1 percent in 2015, and then gaining momentum to 1.5 percent in 2016.

Deflation can be dangerous, risking to trigger a spiral of ever weaker demand, slowing the economy and pushing up unemployment.

The inflation data helps confirm that an unprecedented bout of monetary stimulus -- known as quantitative easing -- by the European Central Bank was taking effect despite the objections of powerful Germany.

Greece's Tsipras government came to power in late January and has been at loggerheads with the EU and IMF ever since, holding up bailout cash and putting its economy on the brink of collapse.

Most worryingly, the EU predicted that the Greek public deficit would stand at 2.1 percent this year, instead of a surplus.

Running a budget surplus is the key condition from the EU and IMF for the Greek bailout.

The EU data also said inflation in Greece had collapsed deep into deflationary territory, at negative 1.5 percent for 2015, down from negative 0.3 predicted three months ago.