EU ups 2006 GDP forecasts

The European commission has raised its 2006 economic growth forecasts after Europe experienced stronger than expected results in the first half of the year.

The new forecasts for economic growth of 2.7 per cent in the EU25 and 2.5 per cent for the euro zone economies ups earlier February estimates of 2.2 and 1.9 per cent.

Presenting the figures on Wednesday, economic and monetary affairs commissioner Joaquín Almunia said the rise in economic growth reflected the resilience of Europe’s economies to outside influences such as high oil prices.

“These figures of improved growth rates are impressive. This acceleration reflects a greater ability of the European economies and in particular the euro area economies who rely on domestic demand.”

The commission publishes interim forecasts twice a year, in the spring and autumn. Wednesday’s figures revealed that domestic demand was a key driver of the recovery in the EU. 

“Economic growth is set to be the best we have had since 2000,” said Almunia who called on EU governments to “use these good times to press ahead with further structural reforms and budgetary consolidation.”

The figures also revealed an improvement in Europe’s labour markets, with unemployment in the EU and in the euro area dropping to 8 per cent and 7.8 per cent respectively.

However, the commission said 2007 could see a marked slowdown. 

“Looking into next year, however, the risks are rather on the downside. In particular further oil price hikes cannot be ruled out,” says the report, adding “a disorderly unwinding of global imbalances continues to be a threat to the world outlook, particularly if the US housing market slows down more markedly”.

This assessment mirrors the view of the US-based International Monetary Fund which will warn finance ministers at next week’s G7 meeting in Singapore that that strong worldwide growth could trigger a sharp global slowdown in 2007.

“Risk to the global outlook is clearly tilted to the downside,” according to an IMF report seen by FT Europe.

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