Euro zone growth faces short term risks as the euro's rise to record highs against the dollar hurts exporters, the European Commission said today.
Its quarterly report on the euro zone economy sought to put the best gloss on the clouded outlook by pointing out a more encouraging outlook for inflation and sticking by its forecast that the bloc's economy would grow 2 per cent this year and next.
It also blamed broad dollar weakness for recent swings that have seen the euro scale record highs against the US currency. Still, data in the report show the toll that the euro's rise on the foreign exchange markets was taking on exporters and the risks highlighted by the Commission were mainly on the downside.
"Recent developments suggest that risks to the short-term growth outlook have not abated, particularly since sharp and disorderly exchange rate adjustments may entail export losses," the report said.
Losses in competitiveness were increasingly weighing on euro zone exports, translating into a loss in export market shares of about five percentage points in three years.
"For euro area exporters, the appreciation of the euro has translated into a significant loss in competitiveness that more than offset the gains registered in 1999/2000," it added.