Commission upbeat on EU growth

THE European Commission was upbeat in its forecast of economic growth in the EU next year yesterday, echoing the mood of the European Central Bank president Jean-Claude Trichet earlier this week.

While growth in the 12-country euro area is expected to be 1.9% for 2006 - in line with forecasts - growth in the EU in general should reach 2.2% for the year, which is an increase of 0.1% on the EU’s autumn 2005 forecast.

In the first of the newly-introduced interim forecasts, Economic and Monetary Affairs Commissioner Joaquin Almunia looked at the EU’s five largest economies. Towards the end of 2006 all five - Germany, France, Britain, Spain and Italy - are expected to grow at or above potential. Inflation should remain steady at 2.2%.

This is 0.1% below the autumn projections and is due mainly to the unexpected temporary drop in oil prices. It is expected to encourage the ECB to raise its main interest rates by 0.25% next month.

Mr Almunia said that said the forecast has taken account only of moderate increases in oil for the year and has not included the risk of consumer confidence being affected by a severe outbreak of avian flu.

However there are large variations across member countries. The German and French economies will show more positive results this year despite being a disappointing 0.0% in Germany and 0.2% for France in the final quarter of 2005.

The Spanish and British economies continue to be the best growing of the five. Ireland’s growth is expected to be 5% this year.