–Economists See 2010 Forecast Revised Up To Match ECB Staff

By Emma Charlton

BRUSSELS (MNI) – The European Commission is set to revise upward
its forecasts for growth this year when it updates its projections on
September 13, economists said.

In its previous set of forecasts, published in May, the Commission
predicted Eurozone annual gross domestic product growth of 0.9% this
year after a contraction of 4.1% in 2009. That now looks out of date
after second quarter growth steamed ahead, powered by Germany.

Gross domestic product in the Eurozone expanded 1.0%
quarter-on-quarter in the second three months of the year, according to
the latest data from European Union statistics agency Eurostat — the
fastest pace in four years. That’s well ahead of the 0.4% expansion that
the European Commission had projected in its May forecast.

“Anything other than a significant upward revision [of the
Commission's 2010 forecast] would be a surprise,” said Carsten Brzeski,
an economist at ING in Brussels. “I guess that they will get close to
the ECB projections,” he added.

The European Central Bank staff forecasts — updated at the ECB
Governing Council’s September monetary policy meeting — put 2010 GDP in
a range of 1.4% to 1.8%, with a growth midpoint of 1.6%. For 2011, the
staff now projects growth in a range of 0.5% to 2.3%, yielding a
midpoint of 1.4%.

The ECB projections are close to some private sector forecasts.
Goldman Sachs economists predict Eurozone growth of 1.7% this year,
while economists at UniCredit and ING share a forecast of 1.6%
year-on-year growth.

A breakdown of the Goldman Sachs profile shows strong growth in the
second quarter, tempered by more moderate outcomes in the second half of
the year. The forecasts show expansion of 0.3% in Q1, 1.0% in Q2 and
0.4% in Q3 and Q4.

By contrast, the Commission will be updating forecasts of 0.1% in
Q1, 0.4% in Q2, 0.2% in Q3 and 0.3% in Q4.

“The Commission’s forecasts were already out of date when they came
out in May,” said an EU diplomat who declined to be named. He added that
the May forecasts had significantly underestimated the strength of the
German economy.

The new Commission forecasts, which will contain one-year
projections of GDP growth and consumer price inflation for the Eurozone,
the EU, and the EU’s seven largest economies, won’t contain any
information on 2011.

The country breakdown is likely to show divergence, economists
said, with Germany and France recovering at a robust pace, while Spain
lags behind.

On the price front, no major revisions are expected, because the
Commission is already in line with general consensus, predicting that
the consumer price index will rise at a rate of 1.5% this year and 1.7%
in 2011.

That’s similar to the European Central Bank staff’s forecasts for a
midpoint of 1.6% this year and 1.7% in 2011.

Goldman Sachs economists expect inflation to rise 1.5% this year
and 1.6% next year, well below the ECB’s price stability threshold of
close to but below 2%.

The European Commission’s interim economic forecasts are calculated
on the basis of projections for France, Germany, Italy, the Netherlands,
Poland, Spain and the United Kingdom, which together account for about
80% of the EU’s GDP.

A more wide-ranging set of predictions will be published by the
Commission in November, and will contain updated projections for 2010
and 2011 for all of the EU’s 27 member states and for a larger set of
indicators.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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