Rehn eyes increased eurozone growth
Economic and monetary affairs commissioner warns of uneven growth and inflation, but says that recovery will gain ground.
Olli Rehn, the European commissioner for economic and monetary affairs, has warned that growth in the eurozone remains uneven and that inflation is likely to rise, partly as a result of higher oil prices because of turmoil in the Arab world
Rehn added, however, that the outlook was broadly positive, and that growth was likely to be stronger than expected among EU member states as a whole.“ After the expected slowdown of growth in the second half of last year the EU economic recovery will gain ground this year,” he said.
“Compared to our autumn forecast in November, if anything, the prospects are slightly better and a rebalancing of growth towards domestic demand is expected for 2011.”
Rehn was speaking in Brussels at the launch today (1 March) of the European Commission’s biannual interim economic forecasts, which suggests eurozone growth to be 1.6% in 2011, up from the 1.5% it predicted in November. In the EU as a whole, growth is predicted to be 1.8%, up from the original forecast of 1.7%.
Rehn added: “We are experiencing a multi-speed recovery. Developments remain uneven across member states. This unevenness reflects differences in the scale of adjustment and in the ongoing rebalancing within the European Union.”
Germany leads the pack
Germany is expected to lead the recovery with real GDP growth predicted at 2.4% this year, followed by France at 1.7%. However Spain’s recovery remains, in Rehn’s words, “more muted” at a predicted 0.8%. Outside the eurozone growth in Poland is predicted to be 4.1% and 2% for the UK.
Rehn warned that eurozone inflation would be 2.2% this year, higher than the 1.8% predicted last November due to an increase in energy and commodity prices. The European Central Bank has set a target of keeping inflation at around 2%.
Rehn said: “The remaining economic slack, subdued wage growth and overall rather well-anchored inflationary expectations should keep the underlying inflationary pressures in check.”
He said that there were still uncertainties in the economic outlook in the coming months. “On the upside, robust global growth as well as spillover from the pick-up in activity from Germany to other member states may materialise to a greater extent than is currently envisaged,” Rehn said.
“On the downside, further tensions in financial markets, especially sovereign debt markets, cannot be ruled out, while fiscal consolidation could in the short term weigh more on domestic demand in countries concerned than anticipated.”
Arab instability
Rehn said that the rising oil prices caused by instability in the Arab world could affect the European economy, saying that the consequences of political changes, “preferably democratic developments”, in the Middle East and north Africa could have a significant impact on the economic outlook.
“Oil and commodity prices could exceed the assumed levels and this would impact on inflation,” he said.
However, he added: “We are not, for very realistic reasons, forecasting any double-dip recession. With these oil prices, the impact is still relatively limited on economic growth.”
Rehn said that even if oil prices rose 10% higher than expected this year, the impact on growth in the EU would be less than 0.1%.
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