Economic growth will pick up and unemployment will fall in the euro zone this year, according to an economic forecast produced yesterday by Euroframe - a group of ten economic institutes from across the EU including the Economic and Social Research Institute (ESRI).
Its latest forecast - presented in Dublin at ESRI headquarters yesterday - predicts that growth in the euro zone economy will rise to 2.2 per cent next year, compared with 1.4 per cent last year.
Fiscal reforms in Germany and slightly slower world growth will slow euro zone growth slightly to 2 per cent in 2007.
Despite this, unemployment is predicted to fall from a projected 8.1 per cent this year to 7.8 per cent in 2007
ESRI economist Dr Alan Ahearn said Europe was benefiting from a strong global economy and a turnaround in the German economy and added that growth could be higher, but for the slow pace of institutional reform in the EU.
He blamed this on the lack of an "enforcer" to push through Lisbon reforms, but added that the modest pick-up in growth would be good news for the Republic.
"Any acceleration in EU growth rates is positive for Ireland. Some 40 per cent of our exports go to the EU. Increases in interest rates may be a consequence of strong growth, but the economy needs this right now."
Dr John FitzGerald of the ESRI identified the large size of the US current account deficit as posing a negative risk to the forecast, but said that this risk was small. He said that low yields on long-term bonds were not a cause for pessimism on the US economy, nor an indication of its poor future performance
"We think bond yields are low because of high demand for such bonds from pension yields, as well as a high demand from Asian banks seeking to contain the value of their currencies."
Bond yields move inversely to bond prices, falling as the price of bonds rises.
Euroframe forecasts are based on the assumption that oil prices will average $59 a barrel this year and that the European Central Bank will raise interest rates by half a per cent by 2007 in response to rising inflation. The Lisbon reform agenda reflects a 2001 agreement by EU heads of state to pursue a programme of liberalisation to stimulate growth in the EU economy which has remained subdued since 2001.
