EC predicts eurozone economy will grow faster than expected
THE eurozone economy will probably grow faster than expected this year thanks to a stronger global economy and upbeat eurozone sentiment, but inflation could rise as oil prices surge, the European Commission said yesterday.
In its twice-yearly interim economic forecasts for the 27-nation European Union and the 17 countries using the euro, the commission forecast the eurozone will grow 1.6pc this year, up from 1.5pc it forecast in November.
The forecasts are based on growth in the larger EU states and do not include Ireland.
While the commission boosted its 2011 growth projections for Germany, France, Spain and the Netherlands, it lowered the outlook for the UK, which is our largest trading partner.
Cutting its 2011 forecast to 2pc from 2.2pc, the EU said British growth would be slower than expected because of government cuts.
In another sign of increasing momentum in Europe's economy, German government data showed that unemployment in Europe's largest economy plunged in February three times as fast as economists forecast. The euro-area jobless rate fell to 9.9pc in January from 10pc a month earlier.
"While exports should continue supporting the recovery, a rebalancing of growth toward domestic demand is expected for 2011, resulting in more sustainable growth," Economic and Monetary Affairs Commissioner Olli Rehn said in a statement.
"However, the recovery remains uneven and many member states are going through a difficult phase of adjustment. Moreover, despite the recent relative calm in the financial markets, the situation has not yet fully normalised," he added.
The commission's annual growth survey lists measures that would improve the single currency area's competitiveness, which include better control of public finances, more flexible labour markets and pension reforms.
Inflation, which quickened to 2.4pc in February, will average 2.2pc this year, the commission forecast.
That's up from its November projection of 1.8pc and above the European Central Bank's ceiling of 2pc. The bank will issue new forecasts tomorrow.
The commission said the faster price growth would be a result of more expensive energy and commodity prices.
"Nevertheless, the remaining economic slack, subdued wage growth and overall well-anchored inflation expectations should contribute to keep underlying inflationary pressures in check, with inflation expected to end the year at close to 2pc," it said.
The commission said risks to its forecasts were broadly balanced but noted that among the downside risks were tensions over the sovereign debt crisis on financial markets as well as fiscal consolidation, which could reduce domestic demand.
It also noted that risks to its inflation outlook were on the upside because of the political changes in the Middle East and North Africa.