The euro zone economy should expand by 2.5% this year and by 2.3% in 2008, according to new estimates by economists surveyed by the European Central Bank.
The forecasts were raised from previous averages of 2.1% for each year, the ECB said in its May monthly bulletin.
It said the improved prospects were due to greater expectations for domestic demand, particularly private consumption and investment, along with a brighter outlook for foreign demand.
But economists cited the strength of the euro, oil prices and global imbalances as risks to the growth outlook, the central bank noted.
Their average forecast for 2007 inflation nonetheless fell to 1.9% from 2% while 2008 inflation was expected to be 1.9%, unchanged from the previous outlook. The ECB aims to keep inflation below but close to 2% over the medium term.
The downward revision to the 2007 inflation forecast was explained in part by a smaller than expected impact of the increase in Germany's higher VAT rate. But the economists said inflation risks remained on the upside, citing in particular to the possibility of a rebound in oil prices and an acceleration in wages as a result of the current strong pace of economic growth.
