The European Commission forecast no let-up in the pace of eurozone economic growth over the next two years as finance ministers from the 13-nation currency bloc headed to Brussels for monthly talks on Monday.
Despite what French president-elect Nicolas Sarkozy deems a damagingly high euro exchange rate, the Commission projected GDP growth of 2.6 percent in 2007 and 2.5 percent in 2008 after 2.7 percent in 2006, twice the rate of 2005 and a six-year best.
That would put it ahead of a slowing US economy this year and even further in front of Japan, whose weak currency is creating more concern in Europe than the slide in the dollar. The Commission, a main economic forecaster at pan-European level, published the new predictions a day after French voters swept Sarkozy to power on a free-market agenda that many feel will not however eliminate a tradition of state intervention.
The Commission forecast US growth of 2.2 percent this year and 2.7 in 2008, with 2.3 percent this year in Japan and 2.1 the year after. Of more immediate concern in Brussels was the outlook for growth at the moment and how high the European Central Bank will and should go as it raises interest rates to head off any inflationary dangers.
Europe's Brussels-based trade union lobby warned the ECB not to go further than the quarter-percentage-point rise expected in June, which would leave the eurozone's key policy rate at 4 percent.
"If the European Central Bank continues to hike interest rates, it will repeat the mistake it already made in 2000, and strangle growth," trade union body ETUC said in a statement in which it demanded a moratorium at 4 percent.
Unions and employer federations met ECB chief Jean-Claude Trichet in Brussels before he went into dinner talks with the ministers of finance. From the employer side, BusinessEurope chief Philippe de Buck was cautious too, telling Reuters in an interview:
"The two messages we want to express are: not to hamper the recovery and to take into account the fact that decisions have to be considered as an element of cost for companies." De Buck, like many apart from Sarkozy and others in France, also said the euro's strength was something business could live with so far.
Dutch Finance Minister Wouter Bos shared that view on arrival in Brussels for the talks with Trichet and fellow ministers. "As long as the development is orderly and gradual, as it has been over the last (recent) period, I'm happy with it," he said.
Rises in ECB rates tend to increase the euro's exchange level by boosting the relative attractiveness of investing in the single currency and euro-denominated assets.
Strong figures for March manufacturing orders in Germany on Monday did nothing to dent a conviction among many in financial markets that rates may go higher than 4 percent despite what worries are expressed by unions, business or Sarkozy. The Commission's projection on Monday slightly topped the mid-point of the ECB's March forecast range for growth, which is 2.5 percent for this year and 2.4 percent for 2008.
Consumer price inflation, which the ECB wants to keep just below 2 percent, will slow from 2.2 percent in 2006 to 1.9 percent in 2007 and stay there in 2008, the Commission said. The mid-point of ECB inflation forecasts for 2007 and 2008, made in March, was 1.8 percent and 2.0 percent respectively.