European forecasters gave mixed signals about the pace of eurozone economic recovery on Wednesday, with the European Commission cutting its growth estimates while three research institutes raised theirs.
The Commission trimmed its growth forecasts for the first three quarters of this year despite optimistic remarks from the European Central Bank and EU finance ministers in the past week.
The Commission said it now forecast eurozone growth of 0.4 to 0.8 percent in the first quarter, 0.3-0.8 percent in the second and 0.2-0.8 percent in the third.
On March 3 it projected growth of 0.4-0.9 percent in all three quarters.
"We are still optimistic, it's just a question of small decimals. But the hard data is not substantiating exactly what we had been expecting through the surveys so it is just a little bit lower," a Commission official said.
Business confidence surveys have long signalled a stronger rebound in activity, but hard data and consumer surveys have been less cheery. Economists said the Commission's estimates were still close to consensus and more realistic now.
"These numbers are still in line with our projections which already had growth beginning to slow in the second half of 2006," said Dominic Bryant, economist at BNP Paribas.
"If anything the numbers run a little contrary to the ECB's recently expressed view that risks to growth are probably to the upside in the short term," he said.
But the euro zone's top three economic institutes, the German Ifo, French INSEE and Italian ISAE, raised their forecast for first-quarter growth to 0.5 percent from 0.4 percent previously and for second quarter growth to 0.6 percent from 0.5 percent.
They expect the eurozone economy to expand 0.6 percent in the third quarter as well.
While the institutes' forecasts fit into the Commission's wide ranges, the mid-points of the EU executive's estimates show a declining path compared to a rising trend from the French, German and Italian forecasters.
Ifo, INSEE and ISAE noted the fragility of domestic demand in the eurozone which was also underlined by the IMK economic think tank in a report prepared with the European Trade Union Confederation.
"The weakness of domestic demand is raising concern about the sustainability of the current growth pattern despite positive signs of an upswing in investment," the three said.
They said 2006 growth prospects were unbalanced because even though low ECB interest rates and strong global growth would help the eurozone economy, sluggish private consumption caused by stagnating wages would hinder it.
"Household expenditure is still lacking solid support from the labour market fundamentals," they said in a statement.
The IMK institute, which also singled out flat real wages as an obstacle to growth, called on the ECB to keep interest rates on hold so as not to hurt domestic demand.
Separately, European Union statistics office Eurostat confirmed that eurozone growth slowed to a quarterly 0.3 percent in the last three months of 2005 from 0.7 percent in the prior quarter. Household and government consumption hardly grew or stagnated, and trade contributed negatively.
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