Europe's economy will grow by a substantially faster than expected 1.7% across the euro zone this year, according to new European Union forecasts released today.
'Based on an update for the seven largest EU member states focusing on growth and inflation this year, real GDP is now projected at 1.8% in the EU and 1.7% in the euro area in 2010', the European Commission said.
The previous forecast was for 0.9% growth in the euro zone in 2010, and 1% for the 27 EU members as a whole.
Brussels said it was encouraged to see signs of a 'revival in domestic demand, including private consumption particularly in Germany' alongside an export-driven industrial rebound.
But it also warned that 'amid continued high uncertainty, risks to the EU growth outlook remain elevated.'
'Lingering tensions' over debt
Europe's economy outpaced the US and Japan between April and June, pulled up by Germany's best quarterly performance since reunification in 1990, with growth of 2.2%.
The euro zone grew by 1% compared to quarter-on-quarter growth of 0.4% in the US and 0.1% in Japan, according to official data. But the figures masked deepening divergences even among the biggest countries and leading the EU to warn of 'multi-speed' recovery in today's predictions.
The European Commission also warned a resurgent euro zone debt crisis, with the EU warning of 'lingering tensions' in Ireland and elsewhere.
'The global recovery is still expected to be uneven and is surrounded by major uncertainties,' the European Commission said in its autumn forecast, citing 'the resurfacing of global imbalances, high debt levels and lingering tensions in sovereign-debt markets.'
As Europe braces itself for the impact of a 'soft patch' in global demand, it warned of problems closer to home. It said that despite a 'partial recovery' since a $1 trillion backstop emergency facility was agreed in May to help struggling members, the reality remains 'tenuous, and adverse effects on bank credit provision to the economy cannot be ruled out.'
Ireland has become the latest country to suffer on money markets, paying more to keep pace with funding required for the likes of Anglo Irish Bank and analysts fearing tougher times ahead despite tightened bank funding rules agreed on Sunday.
Brussels said that while sovereign-bond spreads in most European countries have 'narrowed somewhat' since the Greek debt crisis sowed widespread panic over other weak economies, 'they are still significantly above the levels seen at the beginning of the year.'
However the EU's economics affairs commissioner Olli Rehn urged Ireland to act ruthlessly with a "rigorous approach" to tightening public finances, amid continuing concerns over the banking sector.
