EU growth forecasts still optimistic

Date: 22/10/1998

By Chris Johnstone

A RELATIVELY upbeat scenario for the EU's economies has been delivered by the European Commission in the face of a “sombre economic environment”.

The Commission this week cut its forecasts for growth across the Union as a whole next year to 2.4&percent;, down from a spring prediction of 2.8&percent;, citing the Asian and Russian crises and the recent slide in the value of the US dollar as key factors.

However, growth in the single currency zone is expected to be higher, at 2.6&percent;, and the Commission is predicting that the figure for the whole of the EU will bounce back to 2.8&percent; in 2000.

The Commission says strong internal economic demand will be the biggest factor driving Europe's economies, adding: “Overall, the EU economy is expected to outperform the other major industrialised economies of the world.” It underlines its optimism by upgrading its spring forecast for growth this year from 2.8&percent; to 2.9&percent;.

The Commission's predictions paint a brighter picture of future growth than do most private analysts, but are gloomier than last month's forecast from the International Monetary Fund of 2.8&percent; growth next year.

Belgium's Generale Bank chief economist Peter Praet said most recent growth predictions for Europe were lower than 2.4&percent;. “We came up with 2.4&percent; before the Commission, but if we came up with a new figure tomorrow it would be lower,” he explained.

Despite the decision to revise the growth forecasts downwards, the Commission predicts government deficits in EU countries will fall next year, down to an average of 1.4 &percent; of gross domestic product in 1999 from 1.8&percent; this year.

It has also cut the predicted rate of EU-wide inflation from 2.0&percent; to 1.7&percent; next year, although Ireland, Portugal, Spain and the Netherlands are expected to exceed the European Central Bank's 2.0&percent; inflation target.