Brussels, 20/12/2004 (Agence Europe) - Despite smaller growth than forecast for the third quarter of 2004, the prospects for the current year and for 2005 are unaffected, announced Klaus Regling, Director General for economic and monetary affairs at the European Commission, presenting to the press the results of the third quarterly report on the eurozone economy on Monday. According to Mr Regling, the latest figures should be interpreted with care. Whereas in its autumn forecast the Commission was counting on growth of 0.4% in the third quarter of 2004, the figure was ultimately only 0.3%, compared with 0.5% in the last quarter. According to the document, the change in the third quarter follows from the slow-down in trade and the continuing low level of domestic demand, as well as the historic rise in the price of oil in October and the appreciation of the euro against the dollar.
According to Commissioner Almunia "disappointing growth in the third quarter in France and Germany, which counts for half the economy of the eurozone, has attracted attention", but economic activity has not slowed down everywhere, and has even increased in some eurozone countries. In the third quarter, France and Germany only registered an increase in activity of 0.1%, whereas results in Spain and Italy were more positive. Third quarter results are the result of an overall drop in trade, mainly due to decreased exports. At the same time, although private consumption is still low, we are seeing the first signs of an upturn in investments, says the report. "Although the stagnation in growth in the second quarter seems to indicate that the risks have not diminished, the Commission's basic scenario, which predicted 2% growth this year in the eurozone, remains valid", explained Mr Almunia.
Despite a drop in business leaders' confidence, the updated forecasts for the last quarter of the year, as for the first quarter of 2005, are around 0.2% and 0.6% growth. According to Mr Regling, we are still in a normal recovery sequence, carried by “external demand, investment, growth in household revenue and the recovery of internal demand ". It is the latter on which the realisation of the growth forecasts will depend, as Joaquin Almunia recalled, emphasising that internal demand, which registered "a new, albeit small, acceleration in the third quarter", remains the "key to recovery". Inflation should not fall back below 2% before the second half of 2005, the Commissioner added.
On the exchange market, the appreciation of the euro is not as negative as its recent level against the dollar would suggest. Firstly, says the report, the impact of the rise in oil prices, which is stated in dollars, has been able to be absorbed in this way. Also, in contrast to 2002 and the beginning of 2003, the appreciation of the euro has not been against all currencies, only the dollar. This leads the authors to believe that the weakness of the dollar is at the root of it. Additionally, if the changes in the exchange rates and price rates are taken into account, the real effective exchange rate for the eurozone is only just above its average for 1995 to 2004. Mr Regling nonetheless repeated his concern with regard to American twin deficits. Nobody expects these deficits to disappear rapidly, but European ministers and the European Central Bank have made it known, Mr Regling recalled, that: "the US government must reduce its budgetary deficit, and we must see measures which really turn its intentions into reality by the end of the current administration's time in office " (the report is available here: http: //http://www.europa.eu.int/comm/economy_finance/publications/quarterly_report_on_the_euro_area_en.htm ).