BRUSSELS, Oct 6: Expensive oil could slow eurozone economic growth to 1.2 per cent this year despite signs of recovery in the second half, the European Commission said in a report on Thursday, noting more risks to growth further ahead.

The slowdown would be mainly a result of weak consumer confidence in the 12 countries using the euro, as surging energy bills eat into households’ disposable incomes and compound uncertainty stemming from persistently high unemployment.

Klaus Regling, head of the Commission’s economic services, told a news conference the new forecast, down from 1.6pc estimated in April, was based on mid-points of ranges forecast for the third and fourth quarter.

The final 2005 forecast would be released on Nov 17.

“It is very likely that what we will present in a month will be close to this but not necessarily of course exactly the 1.2pc that the mechanical exercise (gives),” Regling said.

The new Commission estimate was backed by a forecast from the Euroframe network of 10 leading European forecasting institutes which cut its 2005 euro zone growth estimate to 1.2 per cent and also saw threats to growth from high oil prices in the future.

“Despite the projection of a gradual return to potential growth in the second half of the year, the outlook is subject mainly to downside risks linked to the international environment and domestic demand,” the Commission quarterly report said.

The Commission noted that business confidence and industrial production have been on the rise in recent months, helped by low interest rates and demand for euro zone exports from other, faster-growing parts of the world.

“There are good reasons to be optimistic about the prospects for acceleration in economic activity in the second half of the year,” the Commission report said.

But consumer confidence has remained subdued as oil prices in euros have surged more than 70pc since the start of the year and both the Commission and Euroframe expect they will remain above $60 per barrel in 2006.—Reuters