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The 16-member euro area is likely to recover at a faster pace this year than previously estimated as the second quarter performance, particularly in Germany, progressed markedly. But, the aggregate growth figure masks uneven developments across member states.
Eurozone real gross domestic product is forecast to grow 1.7% this year, revised up from 0.9% seen in May, the European Commission said in its latest interim forecast report released on Monday. This upward revision largely reflects a better than expected first half economic growth.
GDP is projected to expand by 0.5% in the euro area in the third quarter and 0.3% in the fourth quarter. The commission said the brighter outlook is supported, inter alia, by sentiment indicators, which point to a continuing expansion of economic activity in the coming months.
"The European economy is clearly on a path of recovery, more strongly than forecast in the spring, and the rebound of domestic demand bodes well for the job market," said EU Economic and Monetary Affairs Commissioner, Olli Rehn.
The commission's interim forecast published in February and September, is based on updated projections for Germany, France, Italy, Spain, the Netherlands, Poland, and the U.K. The commission upwardly revised GDP estimates for all the seven economies.
More than doubling the growth forecast for Germany, the commission said the initially largely export-driven recovery is increasingly becoming more broad-based. Germany's GDP growth is seen at 3.4%. Similar growth is projected for Poland.
Among those seven nations, only Spain is expected to contract this year by 0.3%, but slightly better than the earlier forecast for a 0.4% decline. The French and Italian growth outlook were upwardy raised by 0.3 percentage points to 1.6% and 1.1%, respectively.
Annual real GDP growth is projected to reach 1.9% this year in the Netherlands, revised up from 1.3%. After shrinking 4.9% last year, the U.K. economy is estimated to grow 1.7%, much better than the 1.2% expansion seen earlier.
For 2010, economic growth is expected at 1.8% in the EU27. The figure is higher than 1% expansion estimated in May. The economic recovery in the EU, while still fragile, is progressing at a faster pace than previously envisaged, the report said.
Further, growth is estimated to ease in the second half of 2010, reflecting the softening of the global economy and the fading of the temporary factors that kick-started the recovery.
The commission's inflation forecast for this year is broadly unchanged since May, at 1.8% in the EU and 1.4% in the euro area. The first half of the year saw a moderate rise in the HICP inflation, on the back of rising global commodity prices and upward food and energy base effects, the commission assessed.
According to the report, the remaining slack in the economy, subdued wage growth and low inflation expectations will keep inflation in check, notwithstanding recent exchange-rate developments and weather-related price rises in some agro-commodities.
The European Central Bank expects euro-zone growth to be in a range of 1.4% and 1.8% this year. Annual HICP inflation is seen between 1.5% and 1.7%. The central bank targets inflation 'below, but close to, 2%' over the medium term.
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