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EU lifts growth forecasts despite debt crisis

EU lifts growth forecasts despite debt crisis

November 29th, 2010 in News

LONDON (AP) - The European Commission revised up its economic growth forecasts for the 16 countries that use the euro on Monday despite mounting concerns over the debt crisis which saw Ireland become the second eurozone country to take a bailout.

In its autumn forecast, the Commission said eurozone economic growth this year would likely be 1.7 percent, nearly double its spring forecast of 0.9 percent.

However, for 2011 it has kept its forecast unchanged 1.5 percent. The decrease from 2010 is due to waning global growth and the impact of austerity measures being pursued across the eurozone.

Olli Rehn, the commissioner in charge of economic and monetary affairs, said the recovery has taken hold but that governments need to continue to get a grip on their public finances.

"The turbulence in sovereign debt markets underlines the need for robust policy action," Rehn said.

The forecasts came after the Commission said its economic sentiment indicator for the eurozone rose to 105.3 from October's 103.8, largely on the back of continuing improvements in the services and manufacturing sectors.

The increase was bigger than markets' expectations for a rise to 105.

The survey will fuel hopes that the recovery in the eurozone is on a fairly sound footing despite the debt crisis gripping the single currency zone following much stronger than anticipated economic growth this year.

"November's survey confirms that the troubles in Ireland and elsewhere in the periphery are not standing in the way of a broader recovery in the euro-zone economy," said Jonathan Loynes, chief European economist at Capital Economics.

The key to recovery is that Germany continues to grow strongly and the survey will likely reinforce expectations that the rebound in exports will continue. More importantly perhaps, the survey indicated that consumer spending is on the up as unemployment declines and wage settlements rise.

Despite the further pick-up in sentiment, the European Central Bank is expected to keep its main lending rate at a record low of 1 percent at its meeting Thursday and for many months to come, partly because higher borrowing costs are the last thing the highly indebted countries like Greece, Ireland, Portugal and Spain need right now.

On Sunday, Ireland became the second eurozone country after Greece to be bailed out by its partners in Europe and the International Monetary Fund.