European growth 'to double previous forecast'
GDP expected to rise 1.7pc but recovery 'is still fragile'
Published 14/09/2010 | 05:00
Europe's economy may grow almost twice as fast as previously forecast this year with a more "moderate" expansion in the second half, the European Commission said.
Gross domestic product in the 16-nation euro region will likely increase 1.7pc this year instead of the 0.9pc projected at the depth of Europe's fiscal crisis in May, the Brussels-based commission said in a report published yesterday.
The region's growth rate may slow by half to 0.5pc in the current quarter and weaken to 0.3pc in the fourth quarter, it said.
Europe's economy expanded at the fastest pace in four years in the second quarter, led by a surge in exports and reviving consumer demand.
The commission said growth would weaken as governments trimmed budget deficits, echoing remarks by International Monetary Fund managing director Dominique Strauss- Kahn, who said yesterday that Europe faced the biggest risk of a "sluggish recovery".
European Union Commissioner for Economic and Monetary Affairs Olli Rehn said at a press conference in Brussels: "We have now solid ground under our feet, (but) there's no reason to shout for victory. Instead we must stay alert and vigilant in the face of the remaining uncertainties."
The euro remained higher against the dollar after the report and was up 1pc at $1.2807 at 11.18am in London. It gained after the Basel Committee on Banking Supervision yesterday gave lenders as long as eight years to comply with higher capital requirements intended to prevent future financial crises.
European stocks rose, with the Stoxx 600 index gaining 0.9pc.
In the 27-member EU, GDP may increase 1.8pc instead of a previously projected 1pc, the commission said. GDP in Germany, Europe's biggest economy, will jump 3.4pc, almost three times the pace projected in May, while the French and Italian economies are also seen growing at faster rates. The Spanish economy may shrink 0.3pc instead of 0.4pc.
Euro-area economic growth is already showing some signs of weakening as a cooling global economy threatens to undermine exports and governments step up budget cuts. Growth in Europe's services and manufacturing industries weakened in August and unemployment remained near a 12-year high in July.
The commission said that the recovery remained "fragile" with "uneven" developments among member states. Financial markets have only "partly recovered" from tensions in May when EU leaders were forced to announce a rescue package to prevent the fiscal crisis in Greece from spreading across the region.
While budget cuts may help "dissipate market concerns", Mr Rehn said that "uncertainty about the nature and timing of such measures may weigh" on the confidence in some countries.
In Greece, which posted the second-largest deficit after Ireland in 2009, it was "essential" that the government maintained its "rigorous fiscal consolidation", he said.