4th Mar 2024

Brussels says things are looking up for euro zone economy

The European economy appears to be regaining some momentum and the indications are that things will continue to improve in the second half of the year, the European Commission announced yesterday (11 August)

Presenting its growth figures for the second quarter of 2005, the Commission said that the euro zone had grown by 0.3%, a much stronger performance than most analysts had expected, although weaker than the 0.5% seen in the first three months of the year.

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  • The recent decline in the value of the euro against the dollar has made life easier for European exporters (Photo: European Commission)

The figures were helped by some surprisingly strong economic growth from Italy, which has rebounded from recession but were dragged down by stagnation in Germany, Europe’s largest economy.

The Commission also said that growth should be higher in the fourth quarter of the year (September to December), forecasting 0.4%-0.8%.

The economy should be spurred on by better economic conditions globally and the fact that the recent decline in the value of the euro against the dollar has made life easier for European exporters, Brussels said.

The European Central Bank also sounded a slightly more optimistic note on the European economy. In its monthly report published yesterday, the Bank said that the economy should grow in a "sustained, albeit gradual manner".

Although this may not seem like an especially optimistic outlook, it represents a key departure from the ECB’s usual language and signals a marked change in the Bank’s usually more gloomy assessment of the economy.

However, there was little comfort for those euro zone politicians calling for lower interest rates. The ECB repeated its opinion that it believes rates – at a historically low level of 2% - were "appropriate".

And the Bank warned that high oil prices, which continue to rise strongly, could dampen the recovery. The ECB said it was also worried about the low level of consumer confidence in the euro zone.

Economists and market participants now expect the Bank to increase borrowing costs rather than decrease them, which would potentially slow the economy and harm the consumer.

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