Almunia on the EU's economy

"After several years of sluggish performance, the EU economy is now in a recovery phase. Indeed, the European economies have so far performed markedly better than expected earlier this year, supported by a favourable external environment, as well as by a steady pick-up in internal demand. Economic growth accelerated in the first half of 2006, to reach an annualised rate of 3.6% in the second quarter of the year in both the EU and the euro area.

According to the Commission’s interim forecasts for 2006, presented yesterday, the economic recovery is expected to continue in the second half of the year. Based on data for the six largest Member States, the growth rate for the EU economy for the full year 2006 has been revised upwards to 2.7% in the EU and 2.5% in the euro area, an increase of 0.4 % on the spring forecasts.

This acceleration reflects an increase in the resilience of the European economies and a more balanced composition of growth, thanks to a stronger domestic demand. While the contribution of net exports remains significant, private investment has rebounded strongly. This reflects not only the continued strength of the construction sector, but increasingly a rise in expenditure on equipment. Furthermore, conditions are in place for a parallel recovery in private consumer demand, as suggested also by the confidence indicators.

Looking forward to 2007, we can expect the pace of growth to moderate somewhat as the recovery becomes more established. The outlook will be reassessed in two months in the fully-fledged autumn forecast, on the basis of a more complete set of indicators. For 2007, we expect growth to be affected by developments within and outside the EU economy:

-On the internal side, the pace of growth will be gradually constrained by less favourable corporate financing conditions and by the temporary impact of tax adjustments in Germany.
-On the external side, growth in the US economy is expected to slow from the current levels. The implied easing in export demand from the US means that the EU economy cannot rely on the current level of external stimulus in the period ahead. However, overall conditions in the global economy are not expected to deteriorate dramatically, thanks to a very strong growth, especially in Asia.

Turning to inflation, the Commission predicts a slight upwards revision of the Harmonized Index of Consumer Prices for 2006, from 2.2% and 2.1% for the euro area and the EU respectively, in the spring, to 2.3% for both areas now. This reflects mainly the impact of high oil prices."

EU Press