EU Commission to upgrade growth forecasts

(MADRID) - European Commission economics chief Joaquin Almunia suggested Thursday that expansion in the eurozone economy this year could be far higher than forecast because of unexpectedly strong growth in Germany.

"The eurozone is going to end 2006 with a growth rate of at least 2.6 percent if not more," said Almunia, EU economic and monetary affairs commissioner, at an economics forum here.

For this year, he said: "We are going to end 2007 with growth almost equivalent to that in 2006."

The commission had previously estimated that growth of the eurozone economy, measured by gross domestic product, would reach 2.6 percent in 2006 and 2.1 percent this year.

"In 2007, we'll have growth almost identical to that achieved in 2006," he said.

Almunia said his optimism was based on the German economy's capacity to withstand a rise in sales or value-added tax (VAT) at the start of the year, which most analysts had forecast would hit consumer demand.

"The dangers of the increase in VAT in Germany were apparently overestimated," he said.

In other remarks, Almunia said he was not particularly concerned about the exchange rate of the euro, which is high against the dollar, and that if oil prices did not surge again "we can rule out fears about inflation".

He added: "It doesn't seem that either in terms of growth or inflation we are going to suffer the effects we were thinking about not long ago."