Euro zone growth is likely to slow more than previously expected this year, while inflation is likely to turn out higher, the European Commission forecast today.
In its twice-yearly interim projection the commission said it expected economic growth in the 13 countries using the euro to be 2.5 per cent this year, down from 2.7 per cent in 2006 and below its May 7th estimate of 2.6 per cent.
"Although activity will be revised down slightly in the third and fourth quarter for the euro area and in Q4 for the EU, the positive outlook for the EU from the spring forecast is largely maintained," the commission added.
It said the global economy remained supportive, confidence surveys were still at a high level despite recent weakening, and tighter labour markets underpinned private consumption.
"However, it should be stressed that uncertainty is unusually large as regards the second half of this year, especially for Q4, when the impact of the turmoil in the financial market could influence confidence and growth to a greater extent, which, in turn, could imply a more marked deceleration in 2008," the EU executive said.
Inflation, which the European Central Bank wants to keep just below 2 per cent, is forecast to fall to 2 per cent this year from 2.2 per cent in 2006 - an upward revision of the commission's May projection that prices would grow by 1.9 per cent in 2007.
The growth and inflation forecasts are in line with the mid-point of the ECB projection from last week.