EU Expects Faster Economic Growth (NY Post)

By AOIFE WHITE
AP Business Writer

BRUSSELS, Belgium (AP) -- The European Commission on Monday forecast faster economic growth than expected this year for nations using the euro and for the full European Union, with unemployment dropping to the lowest levels in 15 years.

It estimated 2.6 percent growth in 2007 for the 13 nations using the euro - up from an earlier forecast of 2.4 percent - and 2.9 percent growth for the entire 27-nation, rather than the previously expected 2.7 percent, due to a boost in investment and household spending.

The 10.9 trillion euro ($14.78 trillion) EU economy should add another 5.5 million new jobs in 2007 and 2008, cutting unemployment rates to levels not seen since the early 1990s, the European Commission said in its spring economic forecast.

Most are expected in the euro area where the two biggest nations, Germany and France, still have large numbers of jobseekers. The EU's overall unemployment rate should fall to 7.2 percent this year and 6.7 percent next year, with the rate in the euro zone down to 7.3 percent in 2007 and 6.9 percent in 2008.

"This shows that the strength of the recovery has been transmitted to the employment figures. That is very, very good news," said EU Economic and Monetary Affairs Commissioner Joaquin Almunia.

Last year, the euro-area economy grew 2.7 percent and the economies of the 27 EU countries expanded by 3 percent - the fastest since 2000 as exports boomed and countries started to enjoy the effects of labor market reforms.

This recent growth spurt will slow this year and next year, with the euro nations' economies growing by 2.5 percent and the EU overall by 2.7 percent, the European Commission said.

EU economists expect wages to increase but to stay moderate over the next two years, keeping inflation close to 2 percent - adhering to the European Central Bank guideline and undermining one of its reasons to raise interest rates.

But prices will edge up in 2008 in line with higher spending, the commission said.

It warned that the sunny forecasts could be shadowed by a sharper downturn in the U.S. housing market, any sudden shift in worldwide deficits and new oil price hikes. It estimated that oil prices would average $66.20 a barrel this year and $70.30 next year.

However, they said stronger growth in Asia - and better labor market performance in Europe, which would increase spending - could lift its predictions again.

The commission predicted that the region's largest economy, Germany, would grow strongly at 2.5 percent this year and 2.4 percent in 2008, bringing its unemployment down to 7.3 percent in 2007 and 6.5 percent the year after.

France's economy should expand 2.4 percent in 2007 and 2.3 percent in 2008, it said. Unemployment is likely to remain high at 8.9 percent this year and 8.5 percent next year.

British growth is forecast at 2.8 percent this year and 2.5 percent next year, with unemployment staying stable - and higher than last year - at 4.4 percent for 2007 and 2008.

Italy, however, will grow more slowly: 1.9 percent this year and 1.7 percent in 2008.

Portugal's budget deficit will still break the EU limit of 3 percent next year unless Lisbon takes action, he warned. Four other nations using the euro also will surpass that maximum by the end of this year: the Czech Republic, Hungary, Poland and Romania.

Poland will come under EU scrutiny in September to see if it has obeyed recommendations to cut its deficit, targeted to hit 3.4 percent this year and 3.3 percent next year. Its unemployment rate - the EU's highest - is likely to fall to 11 percent this year and 9 percent next year as the economy grows at more than twice the EU average.