EU revises upward estimates for euro zone growth, inflation

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The European Commission revised upward on Wednesday its estimates for euro zone growth this year and next, but warned against risks posed by new variants of the coronavirus that should be contained to avoid new restrictions.

The European Union executive arm also expected higher inflation this year for the 19-nation currency bloc than it had previously forecast, but estimated consumer prices growth will slow next year.

The EU Commission predicted the euro zone will grow by 4.8% this year, much faster than the 4.3% growth it had forecast in May.

The large revision is largely due to the reopening of the bloc’s national economies in the second quarter which benefited the services sector and is expected to boost tourism within the EU, the Commission said.

The rebound from the economic crisis caused by the pandemic is projected to continue next year, when the euro zone is forecast to grow by 4.5%, more than the 4.4% expansion estimated in May.

The Commission warned however that risks about the outlook remained high, although they were seen as balanced.

It urged the further stepping up of the vaccination campaign to contain threats posed by the spread and emergence of variants of the coronavirus, and in particular by the more transmissible Delta variant. Delta is expected to become dominant in Europe this summer, the Commission said citing estimates from the EU disease prevention agency.

“We must redouble our vaccination efforts, building on the impressive progress made in recent months: the spread of the Delta variant is a stark reminder that we have not yet emerged from the shadow of the pandemic,” said EU economics commissioner Paolo Gentiloni.

A faster vaccine rollout is seen as the key measure to avoid a re-tightening of containment measures against the virus which in turn could affect growth. However, the vaccination drive “may start hitting acceptance constraints,” the Commission acknowledged.

Despite the concerns, Brussels revised upwards its growth forecasts for this year for the three largest economies of the bloc, with France seen expanding by 6.0%, Italy by 5.0% and Germany by 3.6%.

Next year, growth will accelerate to 4.6% in Germany and is expected to remain strong at 4.2% in both France and Italy, although the forecast for Italy was cut slightly from the previously estimated 4.4%.

Inflation, which has become one of the main concerns for economists as global economic growth accelerates, is projected to reach 1.9% this year in the euro zone, up from the 1.7% the Commission estimated in May. Next year, it is expected to slow to 1.4%.

The European Central Bank targets euro zone inflation of just below 2%.

However, “inflation may turn out higher than forecast, if supply constraints are more persistent and price pressures are passed on to consumer prices more strongly,” the EU executive warned.