February 18, 2007	Sunday	Muharram 29, 1428

BRUSSELS, Feb 17: The European Commission on Friday raised its forecast for eurozone growth this year from 2.1 percent to 2.4 per cent as the German and Italian economies bounced back more strongly than expected.

Despite the rosier outlook, this figure would still mark a slight slowdown from the 2.7-percent growth registered in 2006, which was the strongest the eurozone has seen since 2000.

The European Union's executive arm also predicted that the combined economy of the 27 EU nations as a whole would grow 2.7 percent this year, up from an estimate of 2.4 per cent previously.

EU Economic and Monetary Affairs Commissioner Joaquin Almunia said that improved growth prospects could not only be put down to favourable macroeconomic conditions but that painful reforms were paying off.

The European economy has done remarkably well in 2006 and is set to continue to grow briskly in 2007, he said. This is not only due to the favourable cyclical conditions.

It also reflects an increased resilience of the European economy and shows that the economic reforms already carried out were worth the effort, he added.

Looking more closely at expected 2007 growth trends, Almunia said he expected “temporary slowdown” in the first quarter due to an increase in German value added tax to 19 per cent from 16 percent.

The commission forecast quarterly eurozone growth of 0.3 per cent in the first three months of the year, doubling to a rate of about 0.6 percent for the the following quarters.

Not only were growth prospects looking better, the European Commission also expected inflation to be lower than when it last issued economic forecasts in November.

The commission predicted that annual inflation would be only 1.8 percent this year, down from a November forecast of 2.1 percent and spot on the European Central Bank's preferred level of close to but less than two percent.

Almunia said that the lower inflation expectations were based on a lower oil price forecast of 59.9 dollars a barrel instead of 66.3 dollars previously and a lower impact from the increase in German VAT.

The commission was particularly optimistic about the growth outlook for Germany, raising its 2007 forecast for Europe's biggest economy to 1.8 percent from 1.2 previously.

The revised growth figures suggest that, on the back of booming exports, a solid increase in capital formation (investment) and a better functioning labour market, the underlying expansion in economic activity has been more robust than was expected, the report accompanying the forecasts said.—AFP