Eurozone growth to outpace US, Japan at 2.6 pct
(BRUSSELS) - Economic growth among the 13 nations sharing the euro will outpace both the United States and Japan this year, with the long-time laggard eurozone economy to expand by 2.6 percent, the European Commission forecast on Monday.
Expecting a sharply improved performance from economic heavyweight Germany, the European Union's executive arm lifted its eurozone forecast from an estimate in February of 2.4 percent.
The higher forecast means that the economy would grow faster than other major developed economic powers for the first time since 2001, with US growth estimated at 2.2 percent and that of Japan at 2.3 percent.
It would also mark only a marginal slowdown from 2006, when the eurozone grew by 2.7 percent -- its fastest growth since the peak of the dot.com bubble at the turn of the century.
The European Union's executive arm estimated in its semiannual update of its official European economic forecasts that the broader EU economy would grow even more quickly this year than in the eurozone.
It estimated that the 27-nation economy would expand by 2.9 percent, raising its projection from a forecast of 2.7 percent in February.
Sharply stronger-than-expected growth in Germany boosted the overall outlook with Europe's biggest economy forecast to grow 2.5 percent this year, up from a previous forecast of 1.8 percent.
The Commission forecast that growth would ease only slightly to 2.5 percent in the eurozone and 2.7 percent in the EU.
"The European Union and the euro area remain on a brisk growth path that should reduce the unemployment rate and the average public deficit further to levels not seen in a long time," said EU Economic and Monetary Affairs Commissioner Joaquin Almunia.
Welcoming the brighter outlook, Austrian Finance Minister Wilhelm Molterer said: "It gives us more reason to be optimistic for for this and the next year."
"The interesting thing is that the growth rate is going up on the one hand and the unemployment rate is on the other hand going down," he added.
The broad-based economic recovery underway in Europe has helped drive down unemployment rates which have long been a major headache for European politicians.
The Commission predicted that the eurozone would see six million new jobs created between 2006 and 2008 and that the unemployment rate would fall from 7.3 percent this year to 6.9 percent in 2008.
The strong economic growth outlook was expected to ease the strain on government coffers in the eurozone, where members are bound by EU rules to keep their deficits to less than 3.0 percent of output or face fines.
The Commission, which has the job of policing public finances in the EU, forecast that average public deficit levels would fall this year to 1.0 percent, with only Portugal over 3.0 percent with a deficit of 3.5 percent.
Meanwhile, eurozone inflation was forecast to fall to 1.9 percent in 2007 and 2008 from 2.2 percent in 2006, putting price growth spot on the European Central Bank's preferred level of less than but close to 2.0 percent.
The Commission said that growth could turn out even stronger than expected if falling unemployment levels lifted consumer confidence and in turn boosted broader domestic demand.
But it also warned that there were risks to the outlook, especially if a slowdown underway in the United States proved to be greater than expected and if oil prices spiked higher.
Although the euro hit record highs recently against both the dollar and the yen, Almunia was unfazed by the prospect that its strength would weigh on the competitiveness of eurozone exports on international markets.
Looking at the evidence, he said, "you cannot conclude that the appreciation of the euro is having a direct negative impact on our export record because it has been pretty good."
Dutch Finance Minister Wouter Bos said he was "happy" with the euro's strength "as long as its development is orderly and gradual."
