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EU lifts eurozone GDP growth forecasts

The eurozone's economic recovery will gather pace this year and the next, though inflation is expected to remain below the European Central Bank's target of just below 2% over the medium term.

Euro area's economy is estimated to have expanded at its fastest pace in more than a decade in 2017, growing 2.4% during the year, compared with the European Commission's autumn forecast of a 2.2% GDP growth. The higher reading reflects an improving labor market, high consumer and business confidence and a pickup in global economic activity and trade.

The commission also raised its GDP growth forecast to 2.3% from 2.1% for 2018 and to 2.0% from 1.9% for 2019. The expected gradual withdrawal of policy stimulus, the uncertainty around the Brexit transition agreement and the emergence of supply-side constraints are set to weigh on economic activity.

Inflation is expected to be 1.5% in 2018, compared to 1.4% previously predicted, and projected to increase to 1.6% in 2019, in line with the prior estimate. Annual inflation in the euro area declined to 1.3% in January 2018 from 1.4% in December 2017, according to a flash estimate from Eurostat.

The commission said the possibility of tighter global financing conditions and the potential of a sharp correction in financial markets pose downside risks to the growth outlook.

Equity markets have been volatile in recent days as fears of inflation and rate hikes led to a global sell-off.