Euro zone recovery to be modest, says report

The European Forecasting Network, a group of independent economists, has said the euro zone's recovery is set to remain modest.

The group, launched by the European Commission in 2001, gives twice-yearly reports and said the euro zone economy will grow by just 1.4% this year and 2.0% in 2005.

"The euro area lags behind the cyclical upswing of the world economy," it said.

The Network said that, measured by purchasing power parities, the euro appears to be overvalued relative to the dollar, and it forecast a fall in the euro to $1.14 next year.

The network urged the ECB not to depart from its focus on internal stability, arguing that an exchange rate-driven monetary policy runs the risk of being affected by volatility in the currency markets.

European Forecasting Network forecasts an average rate of 1.8% inflation this year, and 1.9% in 2005, reflecting higher prices for oil and some industrial goods.