Growth in euro area goes on

ECONOMIC recovery is continuing in the eurozone with growth expected to be slightly higher than the 1.7% forecast for the year, according to the European Commission.

However, the key to this continuing into next year hinges on consumer confidence and a surge in consumer spending together with no major oil price increases.

Figures for Ireland released earlier this week suggest growth in 2004 of 3.7%, up from the earlier forecast of 1.4%, boosted by a 20% increase in exports and an increase of 12% in capital investment. Consumer spending is contributing about 2% to growth and there are predictions that this will increase.

Economic and Monetary Affairs Commissioner Joaquin Almunia issued the second-quarter report for the eurozone in Brussels yesterday with a warning that the increasing number of countries reporting excessive budget deficits was worrying.

It has been about a year since the euro area economy began to turn around and after a hesitant start, the recovery is now proceeding on increasingly firm ground, he said.

After running at about 1.5% during the second half of 2003, GDP growth gathered momentum in the first quarter of this year with an annualised rate of 2.3%. This was above both consensus expectations and the Commission Spring 2004 Forecasts.

Thanks largely to improvement in world trade and a weakening of the euro that helped exports confidence and leading indicators were now more upbeat.

“Recent data suggest that our spring forecast of 1.7% GDP growth for 2004 - considered optimistic by some commentators at the time - now appears to have been somewhat on the low side,” he said and added that the revision upward would not be dramatic.

The key to continuing growth in 2005, however, was a revival of consumer spending, but so far there were no signs of this happening.

“This is the biggest worry. The rate of private sector savings is going up over the last three years and is contributing to the weakness. There is disposable income, but it is being saved,” he said.