Euro zone economic growth will accelerate this year despite a weak last quarter of 2005 thanks to a pick-up in private investment, the European Commission forecast today.
In the first of its new twice-yearly interim economic forecasts, the commission reiterated its November projection that economic growth in the 12 countries using the euro would be 1.9 per cent this year, up from 1.3 per cent in 2005.
For all of the European Union's 25 member states, however, it forecast growth would be 0.1 percentage point stronger than it expected in November, at 2.2 per cent.
"The noticeable pick-up in private investment, stimulated by sanguine demand expectations, strong corporate profits and continued favourable financing conditions, confirms the positive growth momentum that started last summer despite somewhat disappointing growth figures in the fourth quarter," Economic and Monetary Affairs Commissioner Joaquin Almunia said.
The EC said domestic demand would be the main driver of the recovery, predicting a pick-up in private investment in 2005 would continue into 2006.
Detailed data on French fourth quarter GDP growth seemed to confirm a better mood among households as it showed consumer demand rose 0.7 per cent in the fourth quarter, the same pace as in the third, contributing 0.4 of a percentage point to growth.
"But, of course, there remain risks," Mr Almunia said, noting oil prices that could rise further and global current account imbalances, which may lead to abrupt exchange rate swings.
Recent business and, to some extent, consumer surveys point to stronger economic activity in 2006, but the halving of quarterly growth in the euro zone in the fourth quarter to 0.3 per cent cast some doubt over the strength of the recovery.