European Commission revises upwards its EU growth forecast for 2010

Likewise, it has raised its growth prediction for the euro area from 0.9% in May to 1.7%.

European economic and monetary affairs’ Commissioner Olli Rehn told journalists during a press conference that the Commission had taken this decision “following a recovery in the first half of this year that far exceeded expectations”.

Rehn warned, however, that it expected the pace of growth to slow in the second half of 2010, and that a sustained recovery from the crisis was “still not assured”.

“We now have solid ground under our feet... but there is no reason to shout victory,” Rehn told journalists. “Instead, we must remain alert and vigilant in the face of remaining uncertainties,” he added.

Rehn explained how the improved outlook could be largely attributed to a “sharp recovery” in Germany.

In fact, the Commission had increased its growth forecast for Germany from 1.2% in May to 3.4%, in response to the country's strong performance in the second quarter of 2010.

He warned that growth in the second half of this year would be “negatively affected” by firms reducing the size of their inventories, reduced impact of government stimulus measures, and a slowdown in international trade.

“The uneven speed of recovery across the Member States was a demonstration”, said the commissioner, of the need for less competitive countries to pursue far-reaching structural reforms.

The Commission's revised forecasts were based on data from the EU's seven largest national economies -- Germany, the UK, France, the Netherlands, Spain, Italy, and Poland -- which accounted for approximately 80% of the EU's economy.

The growth outlook for 2010 was revised upwards for all of them, although in some cases by only a small margin. Germany's revision far exceeded that of any other country in the assessment.

The EC had also adjusted the EU's inflation outlook for 2010 from 1.5% annual HICP year-on-year inflation in May to 1.4% in September.

Its inflation estimate for the eurozone remained unchanged from May at 1.8%.

Rehn urged the Irish government to maintain its commitment to repairing its public finances irrespective of the costs of restructuring Anglo Irish Bank.

Ireland had announced its plans to split up the failed lender last week. It was estimated that the costs of restructuring, which would involve breaking up Anglo Irish into a good bank and a bad bank, could rise to as much as €40 billion.

“It's very important that Ireland maintains its rigorous approach despite these formidable challenges,” Rehn warned.