ECONOMY

European Commission sticks to 1.8 pct growth for region

The European Commission said yesterday that its growth forecast for this year remained unchanged at 1.8 percent despite growing signs that a slew of global uncertainties could impede economic activity. «We have reviewed economic developments and affirm that the original estimate stands,» Greek Finance Minister Nikos Christodoulakis, whose country currently holds the EU presidency, said after meeting with European Monetary Affairs Commissioner Pedro Solbes. Solbes said the situation since the Commission issued its forecast in November is «today clearer than before.» The Commission’s decision to maintain its original projection came even as a new survey of European manufacturing suggests the EU economy could contract this quarter. The Reuters Eurozone Purchasing Managers’ Index for January released yesterday remained below the critical 50-point level separating expansion from contraction for the fifth consecutive month, although the pace of contraction showed a slight deceleration. Solbes also played down his previous reservations on the euro’s rally, currently at three-year highs. The single European currency «is too volatile,» he told a European Parliament committee last week. The euro has gained 2 percent since the end of December. Solbes yesterday suggested that the euro’s appreciation was in line with its fundamental value, a fact recognized by the markets. «We consider that the markets define the exchange rate every moment. We have to respect what happens in the markets,» he said. The European Central Bank, in a study of the fundamental value of the euro conducted last year, indicated a median value of around $1.15 for the euro. The single European currency was launched at $1.17 in 1999 but last year sank to as low at $0.83 at one stage. The ECB has voiced firm support for a strong euro, seeing it as a counterweight to inflationary pressures. Solbes also reiterated his opposition to any relaxation of the Stability and Growth Pact to counter risks posed by a possible war in Iraq. «I do not see any reason for the relaxation of the pact. I always say no,» he said. The pact’s credibility took a severe knocking last year after the major eurozone economies ran up budget deficits exceeding the 3 percent ceiling. France has threatened not to abide by the Commission’s order to cut its deficit sharply in the next four years, saying it wants to focus on boosting growth. Solbes said while the risks of a war in Iraq were too difficult to estimate, rising fuel prices were not. He said oil prices are «clearly worse than expected.» The rising tension has kept oil prices above the $30 level. While praising Greece’s economic performance, he also highlighted its problems with above-average inflation, high public debt and future pension liabilities brought on by an aging population.