EU forecast to grow 3 %

Nov 24, 1999 01:00 AM

The European Union's economy, which languished behind a booming United States last year, is projected to grow 3 % this year, outstripping forecasts for U.S. growth, the EU's executive body said. The European Commission's twice-yearly economic forecast said the EU economy was firmly on the road to recovery after a downturn aggravated by 1998's financial crises in Asia and Russia.
From a 2.1 % growth rate in 1999, the economy of the 15-nation union will expand by 3 % annually through 2001. The Commission said the U.S. economy would dip from 3.8 % last year to 2.8 % this year and 2.5 % in 2001. Private analysts have forecast U.S. economic growth in 2000 at between 3.5 and 4 %.

The EU's buoyant figures are a tonic for the EU in the first year since 11 of its members adopted the euro as their shared currency. "The first euro year has allowed us to see a gradual improvement in economic results," EU Economics Commissioner Pedro Solbes told. "Robust growth is now underway." The latest figures were more positive than those recently released by the International Monetary Fund, which forecast 2.7 % EU growth this year, but some analysts said even the Commission was understating the EU's recovery prospects.
"We are even more optimistic," said a senior economist at Deutsche Bank in Frankfurt. "The Commission has a much more cautious stance than we have." Underscoring the jaunty mood, the Commission predicted the EU's stubbornly high unemployment rate was on the way down with a projected drop to 8 % in 2001 from 9.2 %. Solbes said the renewed growth would create almost 5.5 mm new jobs from 1999 to 2001.
However, the Commission warned that external factors - such as an abrupt end to the U.S. boom or increased wage demands from European labour unions - could check the European rebound. "The forecast may be endangered if the international environment turned out to be more adverse, due to, for example, a hard landing in the United States," the Commission cautioned in a statement. There were also fears the Commission forecast for continued low inflation could be undermined by rising oil prices.
"The impact of inflation on consumer prices will be most important in late 1999 and in early 2000. This is mainly because of external factors like oil," Solbes said. Basing its forecasts on current oil prices, the Commission pegged EU inflation at 1.5 % in 2000 and 1.6 % in 2001, comfortably below the 2 % maximum set by the European Central Bank.
More of a dilemma for the ECB was the wide difference in growth among the euro nations. Set up to fix common interest rates across the 11 nations, the ECB has to choose between higher rates to cool inflation in high-growth nations or lower rates to spur growth in laggards.
Long criticised for their slow pace of pro-business reforms, Germany and Italy were confirmed as the euro-zone's dawdlers. Once the driving power of the European economy, Germany is set to record expansion of just 1.5 % last year and will remain below the EU average with a projected 2.6 % growth in 2000 and 2.7 % in 2001. Italy is even further behind. It's economy is scheduled to record a 1.1 % expansion last year. With 2.2 % projected for 2000 and 2.5 % in 2001 Italy will remain the euro-zone's least dynamic economy.
Ireland was projected to continue as the EU's frontrunner. After averaging growth of over 8 % since 1996, the Irish can expect a slight cooling to 6.9 % by 2000. France is also seen making a strong recovery. French growth is set to grow from 2.5 % last year, to 2.9 % next and 3 % in 2001. Outside the euro-zone, Britain's economy is seen racing ahead to 3.4 % growth this year from a sluggish 1.8 % in 1999.

Source: AP
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