–Exports Main Driver Due To Weaker Euro, Stronger World Growth

LONDON (MNI) – The Eurozone economic recovery is likely to be
patchy during the first half of 2010, mainly thanks to the adverse
weather seen in January, the Central Bank of Ireland reported in its
latest quarterly bulletin released today.

The moderate pace of the recovery is likely to keep a lid on price
and wage pressures, the bank suggested.

“While developments may be somewhat uneven in the first half of
2010 – primarily reflecting the unseasonable weather at the start of the
year – the euro area’s recovery is expected to continue,” it said.

Exports are likely to be the main driver of growth in the EMU bloc,
the central bank stated – thanks to a weaker euro and stronger world
growth:

“The region’s external environment has improved further since the
start of the year; a stronger global recovery is now expected, and the
euro has weakened by around 4% in nominal effective terms. As a result,
exports should continue to strengthen and provide the main support to
the recovery this year.”

The turn in the inventory cycle should also help growth:

“The inventory cycle should also contribute to the expansion…euro
area firms continued to run down stock levels in the second half of this
year.”

EMU domestic demand would also stay weak ‘for some time to come’,
the central bank said, “with unemployment forecast to increase this year
and next and a high level of spare capacity.”

Given the required further balance sheet adjustment among
households, firms and governments, the central bank said that the EMU
recovery “is expected to occur at a moderate pace.”

The gradual nature of the recovery should help to quell price and
wage developments, the central bank said:

“Inflation is expected to remain close to 1% until the middle of
the year before increasing somewhat later in the year as food prices
stabilise from recent weakness…Price, wage and cost pressures are
expected to remain subdued, reflecting the gradual nature of economic
recovery and significant spare capacity.”

The bank said that the main risks to this muted projection for EMU
inflation centered on the outlook for economic activity and commodity
prices. There is also “some additional uncertainty surrounding indirect
taxes and administered prices as part of fiscal consolidation measures,”
it said.

–London Bureau; Tel:+44 207 862 7492; email: ukeditorial@marketnews.com

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