Economy: Euro-zone growth faces short-term risks as the euro's rise to record highs against the dollar hurts exporters, the European Commission said yesterday.
Its quarterly report on the euro-zone economy sought to put the best gloss on the clouded outlook by pointing out a more encouraging outlook for inflation and sticking by its forecast that the bloc's economy would grow 2 per cent this year and next.
It also blamed broad dollar weakness for recent swings that have seen the euro scale record highs against the US currency.
Still, data in the report show the toll that the euro's rise on the foreign exchange markets was taking on exporters and the risks highlighted by the Commission were mainly on the downside.
"Risks to the short-term growth outlook have not abated, particularly since sharp and disorderly exchange rate adjustments may entail export losses," the report said.
The director of the European Union executive's monetary affairs division, Mr Klaus Regling, said 2004 growth could be 0.1-0.2 percentage points below the Commission's forecast of 2.1 per cent.
The report said losses in competitiveness were increasingly weighing on euro-zone exports, translating into a loss in export market shares of about five percentage points in three years.
Nevertheless, the Commission insisted that the euro was not wildly out of line with economic reality and pointed out that its strength was helping to keep euro-zone inflation in check.
The euro's appreciation has also reduced the impact of rising oil prices, which are denominated in dollars.
The Commission predicted that headline inflation would remain above 2 per cent in the first months of 2005 due to persistent inflationary pressures from higher oil prices.
But inflation could subside more quickly than forecast in 2005 as oil prices have fallen back.
Meanwhile, new figures released yesterday showed that inward investment continued to rise from 2001 to 2003 .
By the end of 2003 it was almost two thirds, or €113.967 billion, of the overall foreign direct investment (FDI) in the country, which was €171.943 billion over the period.
According to Central Statistic Office (CSO) figures, Dutch investment accounted for just over €60 billion of this investment, over the past two years.
However, inward investment from the US showed a decline in the 2001-2003 period.
At the end of 2003 it was just 13 per cent of the total.
The CSO said this fall was due mainly to some US-owned companies in the Republic granting loans to their foreign subsidiaries. - (Reuters)
