By Chris Jones - 21st February 2006
The European commission is predicting a slight improvement in the EU economy in 2006, but has warned about the continued risk from higher oil prices.
Monetary affairs commissioner Joaquín Almunia said that EU growth would be 2.2 per cent in 2006, while in the eurozone it would rise to 1.9 per cent.
Growth rates in 2005 were 1.5 per cent for the EU and 1.3 per cent for the 12 countries in the euro area.
But he warned that the figures were less comprehensive than the twice-yearly forecasts issued by the commission in April and November.
“The interim forecasts are based on data from the EU’s five biggest economies – Germany, France, Italy, Spain and the UK – and look only at GDP and inflation,” Almunia said.
The figures published in the spring and autumn also include factors such as public deficits.
But with the five biggest markets accounting for 75 per cent of the total EU economy, Almunia said that the data would nonetheless give a more up-to-date picture.
In November, Almunia had predicted EU growth of 2.1 per cent for 2006.
Despite the upward revision, the commissioner warned that there were still risks to the economy.
“Oil prices are evolving in an ever more volatile manner and the risk of further significant prices rises cannot be ruled out,” he said.
But he underlined that the latest current forecasts were based on the assumption that oil prices would continue to rise.
“They are also based on a pick-up in the levels of private investment, strong corporate profits and favourable financial conditions,” he said.
“There is a clear momentum towards positive growth despite relatively poor figures for the final quarter of 2005.”
The commission’s assessment of the EU economy mirrors that of the ECB, whose president Jean-Claude Trichet told MEPs on Monday that growth was expected to continue.
Trichet also warned about the risk of oil prices, but dismissed concerns that the economic recovery had stalled after poor December figures – a conviction borne out by the commission’s analysis.
And the ECB chief hinted that the bank was planning to increase interest rates to keep inflation under control.
But the commission’s data also suggests that inflation will remain stable at 2.2 per cent throughout 2006, despite suggestions from Trichet that the bank expected to have to increase interest rates to keep price volatility under control.
Growth is expected to be biggest in Spain – 3.1 per cent – but Almunia warned that this figure had been revised downwards since November.
He said the Spanish recovery was in danger after a sharp fall in external demand highlighting the country’s “increasing lack of competitiveness”.
Spain and Italy – which is also expected to see a slight drop in growth in 2006 – have both urged the ECB not to increase interest rates because of concerns about a negative impact on their economies.
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