Brussels, 16/02/2007 (Agence Europe) - The European Commission has increased its growth forecasts for the eurozone and EU27 to 2.4% GDP and 2.7% GDP respectively (from 2.1% and 2.4% in the autumn forecasts). The mid-term review of the autumn forecasts was published on Friday and confirms that economic growth in the EU is continuing at a brisk pace, building on 2.9% growth in the EU27 and 2.7% in the eurozone in 2006. The forecasts are based on the EU's seven biggest economies (Germany, France, Italy, Spain and the Netherlands, which account for 85% of the eurozone economy, and, along with the United Kingdom and Poland, for 80% of the EU27 economy), taking inflation into account. Inflation is expected to settle at 1.8% in the eurozone in 2007 and 2% in the EU27, both figures down 0.3% on the autumn forecasts (see EUROPE 9300).
'The European economy has done remarkably well in 2006 and is set to continue to grow briskly in 2007. This is not only due to the favourable cyclical conditions. It also reflects an increased resilience of the European economy and shows that the economic reforms already carried out were worth the effort. The result is that the EU is creating more jobs and the structural unemployment has fallen to its lowest level in more than a decade,' said Joaquín Almunia, EU Economic and Monetary Affairs Commissioner. Annual unemployment in the eurozone stood at 7.8% in December 2006. Almunia said that there had been a levelling off of differences among the EU economies, and domestic demand - the engine of growth - had picked up, with private consumption contributing as much to growth as investment. Confidence indicators have risen for 2007 despite the increase in VAT in Germany (which had less of an impact than expected). In Germany in the first six months of 2007, GDP is expected to fall 0.5% and growth in the eurozone is expected to reach no more than 0.3% in the first three months of 2007. In the remainder of the year, quarterly growth is expected to hover around 0.6% in the eurozone and the EU27, stimulated by domestic demand, forecasts the Commission.
Higher oil prices kept consumer price inflation at 2.2% in 2006 for both the eurozone and the EU27, unchanged from 2005. But core inflation (excluding energy an unprocessed food prices) remained steady at around 1.5%. Inflation in 2007 will be lower than forecast, thereby increasing disposable incomes and justifying the ECB's recommendations for salary moderation (see EUROPE 9362) explained Commissioner Almunia. The reduction in inflation forecasts is explained by lower oil prices than forecast in November (USD 59.9 a barrel, as opposed to 66.6) and the relatively limited impact of the German inflation increase. Almunia commented that pay increases matching real productivity increases are perfectly normal but problems arise if pay increases outstrip productivity, with the danger of encouraging more 'restrictive' monetary decisions.
After a slowdown in the first quarter of the year, growth is expected to increase in Germany to reach 1.8% in 2007, as opposed to 1.2% in the European Commission's autumn forecasts. Economic growth in Spain will be higher than forecast too, predicted to rise to 3.7% rather than 3.4%. France will experience brisk domestic demand but this will not suffice to counteract worse than expected changes in foreign trade. Almunia said the 'rather optimistic' autumn forecasts of growth in France had been revised down from 2.2% to 1.9% for 2006 and from 2.3% to 2.2% for 2007. GDP is expected to rise by 2% in Italy in 2007, 0.6% less than in the autumn forecasts. Despite being below the eurozone average, the commissioner said Italy's growth rates were catching up with the rest of the eurozone. Growth in the Netherlands is expected to reach 2.8% in 2007 (compared with 2.9% previously) with very buoyant domestic demand due to sharp improvements in the labour market. Growth in Poland has widely outstripped the 4.6% forecast, reaching 6% this year, as a result of good results in all areas (consumption, investment and foreign trade), which means Poland should find it easier to correct its budget deficit by the end of 2007, commented Almunia (see EUROPE 9361). The United Kingdom is still experiencing an economic boom, with economic growth expected to reach 2.7% in 2007 (up from 2.6%). Commissioner Almunia commented that the risks seemed to be well-balanced, both domestically and on the export front. (ab)