The European Commission today (13 September) hiked its projections for economic growth in the EU in 2010, following a recovery in the first half of this year that far exceeded expectations.
The Commission warned, however, that it expects the pace of growth to slow in the second half of 2010, and that a sustained recovery from the crisis is still not assured.
“We now have solid ground under our feet… but there is no reason to shout victory,” Olli Rehn, the European commissioner for economic and monetary affairs, said.
“Instead we must remain alert and vigilant in the face of remaining uncertainties,” he added.
The Commission has raised its growth prediction for the EU to 1.8% in 2010, compared to a prediction of 1.0% it made in May. It has raised its growth prediction for the eurozone from 0.9% to 1.7%.
Rehn said that the improved outlook could be largely attributed to a sharp recovery in Germany. The Commission has increased its growth forecast for Germany from 1.2% (in May) to 3.4%, in response to the country’s strong performance in the second quarter of 2010.
He said that growth in the second half of this year would be negatively affected by firms reducing the size of their inventories, reduced impact of government stimulus measures, and a slowdown in international trade.
The uneven speed of recovery across the member states was a demonstration, said the commissioner, of the need for less competitive countries to pursue far-reaching structural reforms.
The Commission’s revised forecasts are based on data from the EU’s seven largest national economies (Germany, the UK, France, the Netherlands, Spain, Italy, Poland), which account for approximately 80% of the EU’s economy.
The growth outlook for 2010 was revised upwards for all of them, although in some cases by only a small margin. Germany’s revision far exceeds that of any other country in the assessment.
The Commission also adjusted the EU’s inflation outlook for 2010 from 1.5% annual HICP year-on-year inflation (in May) to 1.4%. Its inflation estimate for the eurozone remained static at 1.8%.
The Commission made its forecasts on the same day that the Organisation for Economic Co-operation and Development (OECD) warned that economic growth in parts of Europe, including Germany, may be petering out. The OECD, a think-tank for wealthy countries, said that growth may have reached a “possible peak” in July.
The OECD said that “tentative signals have emerged” that the expansion phase in Germany “may soon peak”.
Rehn urged the Irish government to maintain its commitment to repairing its public finances irrespective of the costs of restructuring Anglo Irish Bank. Ireland announced its plans to split up the failed lender last week. It is estimated that the costs of the restructuring, which will involve breaking up Anglo Irish into a good bank and a bad bank, could rise to as much as €40 billion.
“It’s very important that Ireland maintains its rigorous approach despite these formidable challenges,” Rehn said.
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