The euro zone economy should grow faster in the first quarter of 2005 than previously expected due to the recent decline in oil prices, the European Commission said today.
Its model predicted the economy of the 12-nation area would expand at a quarterly rate of between 0.3 and 0.7 per cent in the first three months of 2005, an increase of 0.1 per cent age point at both ends of the range compared with a previous forecast.
The growth forecast for the fourth quarter of 2004 was left unrevised at 0.2-0.6 per cent . There was also no change to the actual outcome for the third quarter, when the euro zone economy expanded at a quarterly rate of 0.3 per cent and an annual one of 1.8 per cent , according to separate data from the European Union statistics office.
The Commission's model uses variables including euro zone car registrations, retail sector business surveys, construction sector surveys, relative yield spreads between the euro zone and the United States and the euro's real effective exchange rate.
"It's a result of the evolution of oil prices which have gone down," said Ms Amelia Torres, commission spokeswoman for economic and monetary affairs when asked why the Commission's model had increased its first quarter growth forecast.
Oil prices, as measured by US crude futures have fallen by around $10 a barrel since last October to just over $45 on Wednesday, mainly due to mild winter weather in Europe and the US northeast.
The Commission report comes a day after Germany's ZEW research institute reported a rebound in its gauge of investor confidence as lower oil prices, improved retail sentiment and a weaker euro led to more optimism about the outlook for Europe's largest economy.