The European Union rejoiced last week over the recovery of its economy after several years of sluggish performance. “Based on the data for the six largest member states, the growth rate for the EU economy for the full year 2006 has been revised upwards to 2.7 percent in the EU and 2.5 percent in the Euro area, an increase of 0.4 percent on the spring forecasts,” said Joaquin Almunia, European Commissioner for Economic and Monetary Affairs.
Addressing “Euromoney Covered Bond Congress” in Madrid, Spain last Thursday, the commissioner predicted, “The economic recovery is expected to continue in the second half of the year.” Thanking the stronger domestic demand, Almunia said, “This acceleration reflects an increase in the resilience of the European economies and a more balanced composition of growth.”
Listing the factors set to affect the growth of the EU economy in 2007, the commissioner said, “On the internal side, the pace of growth will be gradually constrained by less favourable corporate financing conditions and by the temporary impact of tax adjustments in Germany.” “On the external side, growth in the US economy is expected to slow from the current levels. The implied easing in export demand from the US means that the EU economy cannot rely on the current level of external stimulus in the period ahead.” But he sounded an optimistic note saying, “However, overall conditions in the global economy are not expected to deteriorate dramatically, thanks to a very strong growth, especially in Asia.”
Earlier, presenting the second interim forecasts of the commission’s economic and monetary affairs Directorate General, the commission had hailed the strong growth but had also warned not to put their feet up and let reforms to decelerate. Almunia in a statement issued in Brussels had said, “Economic growth this year is set to be the best we have had since 2000. Let’s use these good times to press ahead with further structural reforms and budgetary consolidation. Only this way will we be able to increase the growth potential where it is low and manage the necessary safety margin for when the going gets rough.”
The commission in its forecast said, “The European economy is set to continue to grow above potential throughout the year despite an increase in oil prices of 80 percent since the start of 2005.”
Summing up the effect of economic activity on employment sector, the commission noted, “In July, the jobless rate stood at eight percent in the EU and 7.8 percent in the Euro area versus 8.7 percent and 8.6 percent respectively a year earlier.” “In view of the pronounced pick-up in economic activity, labour productivity is set to rise at around two percent this year,” it added.
On the sensitive issue of inflation, the commission was upbeat saying, “While consumer prices are pushed up by higher energy costs, underlying inflation remains contained thanks to improved labour productivity and international competition. Overall, inflation is expected to be 2.3 percent in 2006 in both EU and the Euro area after 2.2 percent last year.” “Based on current market expectations, oil prices are assumed to hover around USD 73 a barrel in the second half of 2006 while the exchange rate of the Euro against the USD will not deviate much from the current level,” said the commission. With these positive predictions hitting the stands, European Union finance ministers were meeting in Helsinki last Friday and Saturday under the leadership of Eurogroup spokesman Luxembourg’s Prime Minister Jean-Claude Juncker while Finnish Finance Minister Eero Heinaluoma, whose country holds the current EU presidency, hosted the EU meeting.
In another data on the table, the Organisation for Economic Cooperation and Development (OECD) said last Tuesday that it expected a stronger economic performance from Europe as a whole in 2006 than initially forecast.
In its interim assessment on the economies of its member nations, the Paris-based OECD raised its forecast for GDP growth in the Eurozone to 2.7 percent, compared to the 2.2 percent predicted in spring.
The EU’s statistical agency Eurostat also signalled stronger growth across the bloc, with second quarter growth in 2006 expected to be 0.9 percent higher than during the same period last year. Eurostat said first quarter 2006 growth stood at 0.8 percent.
Tito Tejinder Singh