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Investors betting on further solid economic growth in the eurozone got heartening news on Monday - Germany's often cautious government forecasters expect it too and are set to hike their predictions accordingly.
In parallel, a monthly business survey by the French central bank prompted it to increase marginally its third-quarter growth forecast to 0.5 percent quarter-on-quarter, which is roughly 2.0 percent when computed US-style, from 0.4 percent previously.
That showed the biggest and second largest economies of the single European currency area still looking fit, if not quite sprinting like they did in the first half of 2006. A German government source revealed that official forecasts due to be published this week are not only set to lift estimates for 2006 to a six-year best of 2.4 percent but are also poised to raise the outlook for 2007, to 1.5 percent from 1.0 percent.
After a surprise first-half acceleration, the latest news supports a belief in financial markets that European growth is healthy, even if less racy than in the first six months of 2006. That conviction is bolstered by a less alarmist view of late in markets of the potential gravity of a US slowdown.
"Economic figures on both sides of the ocean have tended to surprise positively versus expectations, reflecting a broad-based, resilient global expansion, which has reduced concerns about downside risks to growth in 2007," said Lena Komileva, an economist at financial brokerage Tullet Prebon.
Euro zone growth sped up to 0.9 percent quarter-on-quarter in the three months to end-June, or 3.6 percent in US-style accounting, outstripping the United States, Japan and Britain and setting the scene for the best year's growth since 2000.
Morgan Stanley's Eric Chaney raised his bank's forecasts in a note to clients on Friday, to 0.7 percent quarter-on-quarter for the third quarter, from 0.5 percent previously, which is roughly 2.8 percent when annualised US-style. Germany accounts for almost 30 percent of the gross domestic product of the 12-nation eurozone and France near 20 percent.
The German VAT rise to a standard rate of 19 percent on January 1, intended to rein in the deficit and fund payroll tax cuts to promote jobs, is blurring the growth picture. Germany's trade union-funded Institute for Macroeconomic Research criticised the VAT rise on Monday, saying 2007 could be a "lost year" for recovery due to a combination of the indirect tax hike, higher ECB interest rates and tighter fiscal policy.

Copyright Reuters, 2006

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