Eurozone economy forecast to grow by 1.6% this year

Posted on May 16, 2011 in AllEconomic News
Eurozone economy would grow by 1.6 percent this year, with downside risks to growth prevailing amid increased uncertainties, the European Commission said in a major forecast on Friday.

The growth figure was slightly revised up, compared with a previous forecast in autumn, which had predicted that the 17-nation euro zone may post a growth rate of 1.5 percent in 2011.

For the next year, eurozone economy was projected to grow by 1.8 percent, remaining unchanged from the autumn forecast.

Meanwhile, the combined economy of the whole European Union (EU) was expected to expand by 1.8 percent this year and by 1.9 percent in 2012, according to the commission’s spring economic forecast.

The EU’s executive arm had predicted a growth rate of 1.7 percent for the EU this year and 2.0 percent in 2012.

With prospects for 2011 looking slightly better than projected in the autumn, the commission said the European economy was set to further consolidate its gradual recovery, supported by improvement in the global economy and overall upbeat EU business sentiment.

“The main message in our forecast is that the economic recovery in Europe is solid and continues, despite recent external turbulence and tensions in the sovereign debt market,” said Olli Rehn, EU Commissioner for Economic and Monetary Affairs.

However, inflation is rising faster, reflecting the increase in commodity prices. Headline inflation was projected to average almost 3 percent in the EU and 2.6 percent in the euro zone this year, before easing to about 2 percent and 1.8 percent respectively in 2012.

The overall picture could not mask the marked differences in developments across EU member states.

Some countries, in particular Germany, but also some smaller export-oriented economies, have registered a solid rebound in activity, while others, notably some eurozone peripheral countries, are lagging behind due to their debt problems.

It was expected that the pace of recovery within the EU would continue to vary, the commission said.

The commission warned financial markets, particularly some sovereign-bond segments, would remain fragile, and damaging negative feedback loops could not be totally excluded, posing a major risk to the economic outlook.

In addition, the recent political changes in the Middle East and North Africa and the economic fallout of the earthquake and tsunami in Japan heightened uncertainty and constitute downside risks to global economic activity, which could be detrimental to European recovery.

“All in all, the balance of risks for the economic growth outlook presented in this forecast is clearly tilted to the downside,” the commission warned.

via Eurozone economy forecast to grow by 1.6% this year – People’s Daily Online.