Low European interest rates for next two years

EUROPE is set to enjoy an ongoing period of low interest rates for the next two years.

In a major economic review of the European Union by 10 of its top research institutes, including the Economic and Social Research Institute, interested rates are projected to stand at 2.75% by end 2006.

They forecast an increase of just 0.25% later this year with a hike or hikes of 0.5% to follow next year.

The benign rates are attributable to low economic growth and the fact that inflation is staying close to its stipulated 2% level at the moment. This is good news for home owners and, as forecast elsewhere, will still leave the appetite for Irish credit running at pretty strong rates, analysts said. However the downside of the low interest rate regime is reflected in poor growth forecast for the EU region. European economic growth will register no more than 1.5% in GDP terms in 2005 rising by just 2% in 2006. That contrasts sharply with projected GDP growth in Ireland of over 5% and 3.5% to 4% growth in the US this year.

“This faltering recovery will move the euro area back towards rates more in line with its estimated potential after almost a half-decade of under-achievement,” said the spring report by Euroframe - Efn.

It said while the Lisbon Agenda, in 2000, set out the ambitious plan of turning Europe into the most competitive economy in the world it had a way to go before reaching that target.