Economic growth in the 12-country eurozone is set to remain "robust" in the next 12-18 months, but downside risks remain in the longer term, the European Central Bank found on Dec. 11. "The indications are that the pace of economic activity will remain robust over the next 12-18 months, but at a somewhat slower rate than in 2006, with area-wide gross domestic product (GDP) growing at around potential," the ECB wrote in its semi-annual Financial Stability Review.
Euro-area exports were expected to contribute to growth and investment growth would remain strong "given robust foreign demand, still supportive financing conditions, high levels of corporate sector profitability and improved business confidence."
Private consumption growth would be supported by a pick-up in real disposable income and improvements in labor market conditions.
However, the planned increase in value-added or sales tax (VAT) in Germany at the start of next year was expected to lead to a slowdown in growth for the euro area as a whole.
According to the ECB's latest updated economic forecasts, published last week, the eurozone economy is expected to growth by 2.7% this year and by 2.2% next year, followed by growth of 2.3% in 2008.
"Overall, the risks to the euro area economic outlook appear to be broadly balanced over the short term, and the risk of low growth appears limited," the ECB wrote. "However, over the medium term there is greater uncertainty about the outlook, and downside risks have prevailed regarding the possibility of a renewed increase in oil prices, the disorderly unwinding of global imbalances and the risk of protectionist pressures, especially after the collapse of the Doha round of trade talks."
Copyright Agence France-Presse, 2006
