EU Commission seen raising eurozone growth forecast

The European Commission is likely to raise its 2007 economic growth forecast for the eurozone on Monday because of a stronger-than-expected performance by Germany, European Union sources said. The Commission's last projection on growth this year in the 13 countries using the euro was 2.4 percent, announced in February.
This compared with a 2.7 percent expansion in 2006. The new forecast will be at the centre of monthly economic talks among eurozone finance ministers and European Central Bank President Jean-Claude Trichet later on Monday.
"I would be very surprised if they don't see 2007 a bit stronger than the previous forecast," one EU source close to preparations for the ministerial meeting said. "It will definitely go up," a second source involved in the monthly get-together said of the new Commission forecast. It will be released on Monday with growth, inflation, debt and unemployment projections for the EU's 27 countries.
"It is generally looking very good, better than expected," the second source said of the economic outlook for 2007. It said the new forecast could be in a conservative range of 2.5-2.6 percent, even though growth in the 13 countries using the euro could be as good this year as it was in 2006.
"Anything but an upward revision for 2007 would be a surprise because the previous forecast for Germany was 1.8 percent growth," the source said. "Now all the German institutes have revised up their forecasts for German growth." Germany's five leading economic research institutes said on April 19 they expected the economy to grow by 2.4 percent this year and next, against 2.7 percent in 2006.
"So just pure arithmetic tells you that the forecast for the whole euro area will have to go up," the source said. "Putting big shocks aside, if things continue to develop along the trajectory of the first four months, I guess growth in 2007 should be no less than in 2006," the source said.
The reasons for the better growth were smaller negative effects than expected on the German economy from a 3 percentage point rise in value-added tax at the start of the year and an economic soft landing in the United States. The strong euro, which has cut the cost of oil imports, played a role, the source said, adding that the economy appeared not to have peaked in 2006 as previously thought. On inflation, which the ECB wants to keep just below 2 percent, the second source said.