ECONOMY

Eurozone GDP growth in 2005 down to 2 pct

MADRID – European Monetary Affairs Commissioner Joaquin Almunia dropped his strongest hint yet yesterday that the European Commission could cut its 2005 eurozone growth forecast because of soaring oil prices. The European Commission is due to release updated economic forecasts for the eurozone on October 26. Its April forecasts predicted eurozone growth of 1.7 percent this year and 2.3 percent next year. Almunia, speaking in Madrid, said 2 percent growth for the eurozone this year now appeared to be in the bag. He declined to say whether the 2005 forecast might be revised down, but his reply when asked about the impact of current oil prices on 2005 growth pointed in that direction. Asked what it would mean mean for 2005 EU growth if oil stayed at $45-$50, Almunia said, «For every $10 rise in the oil price, growth in the European Union could fall by 0.2 percentage points.» The Commission’s reference price for its forecasts was around $30 a barrel, he added. «If prices stay at the current level it (the impact) would be 0.3 of a percentage point,» he said, speaking at an event organized by the New Economy Forum, a current affairs group. Oil prices have soared some 65 percent this year. US light crude dipped slightly to $54.55 a barrel yesterday after setting a new all-time high on Thursday while London Brent eased 24 cents to $49.85 a barrel. Almunia said that recent International Monetary Fund meetings had given slightly more weight to reasons for downgrading growth forecasts than to raising them. «To what extent can that influence us in the eurozone to reduce or maintain the forecast of 2.3 percent? We’ll see in the coming days… I’ll announce the figure on the 26th. I wish I could keep the 2.3 figure we had in April,» he said. Data from the first two quarters indicated that eurozone growth for the whole of 2004 would be around 2 percent, Almunia said. «You can take it practically as a fact,» he said. Almunia said there were «tensions» which justified a rise in the oil price but not all of the rise. These included the Iraq conflict, tensions in Nigeria and the problems of Russian oil company Yukos. There had also been a strong rise in demand from China, he said.