The European Commission forecast no let-up in the pace of euro zone economic growth over the next two years as finance ministers from the 13-nation currency bloc headed to Brussels for monthly talks today.
Despite what French president-elect Nicolas Sarkozy deems a damagingly high euro exchange rate, the Commission projected GDP growth of 2.6 per cent in 2007 and 2.5 per cent in 2008 after 2.7 per cent in 2006, twice the rate of 2005 and a six-year best.
That would put it ahead of a slowing US economy this year and even further in front of Japan, whose weak currency is creating more concern in Europe than the slide in the dollar.
The Commission, a main economic forecaster at pan-European level, published the new predictions a day after French voters swept Mr Sarkozy to power on a free-market agenda that many feel will not however eliminate a tradition of state intervention.
The Commission forecast US growth of 2.2 per cent this year and 2.7 in 2008, with 2.3 per cent this year in Japan and 2.1 the year after.
Of more immediate concern in Brussels was the outlook for growth at the moment and how high the European Central Bank will and should go as it raises interest rates to head off any inflationary dangers. Europe's Brussels-based trade union lobby warned the ECB not to go further than the quarter-percentage-point rise expected in June, which would leave the euro zone's key policy rate at 4 per cent.
"If the European Central Bank continues to hike interest rates, it will repeat the mistake it already made in 2000, and strangle growth," trade union body ETUC said in a statement in which it demanded a moratorium at 4 per cent. Unions and employer federations met ECB chief Jean-Claude Trichet in Brussels before he went into dinner talks with the ministers of finance.
The mid-point of ECB inflation forecasts for 2007 and 2008, made in March, was 1.8 per cent and 2.0 per cent respectively. Markets expect the ECB to raise interest rates by 25 basis points to 4.0 per cent in June and once or twice more after that to stem inflationary pressures from fast credit growth and a tighter labour market, which is likely to boost wages.
The Commission said real and nominal short-term interest rates were still relatively low, despite ECB rate hikes since the end of 2005, and "liquidity was ample by all measures".
The Commission saw unemployment in the euro zone falling to 7.3 per cent of the workforce this year and 6.9 per cent in 2008 - both new lows since records started in 1993.
Consumer price inflation, which the ECB wants to keep just below 2 per cent, will slow from 2.2 percent in 2006 to 1.9 per cent in 2007 and stay there in 2008, the Commission said.