The euro zone economy picked up speed in the first quarter of this year due to improving domestic demand and should continue to grow at a steady pace in coming months, the European Commission said today.
Nevertheless, the European Union executive cautioned the underlying strength of the economy should not be overestimated, referring to mixed signals from business surveys.
In its quarterly report on the economy of the 12-nation euro zone, the Commission forecast quarterly growth of 0.5 per cent in the first quarter, up from 0.2 per cent in the fourth quarter.
"The euro-area economy is estimated to have grown by 0.5 per cent in the first quarter of 2005 compared with the last quarter of 2004 and is expected to remain around the same level for the following periods," the Commission said.
This forecast is in line with the Commission's forecast from April 14th when it saw first quarter growth of 0.2-0.6 per cent, expanding to 0.3-0.7 per cent in the second quarter.
"The economy appears to have picked up in the first quarter of 2005 as domestic demand continues to improve in the euro area. But as business surveys have been sending mixed signals, the underlying strength of the economy should not be overestimated," the commission said.
Eurostat, the European Union's statistics office, is set to release its estimate for first quarter growth in euro zone gross domestic product on May 12th.
A sharp slowdown in the last quarter of 2004 combined with high oil prices, persistent euro strength and an easing of global growth has raised question marks over the prospects for euro zone growth in 2005.
The commission and the International Monetary Fund recently cut their forecasts to growth of 1.6 per cent from 2004's 2.1 per cent.