Eurozone economy to bottom out this year

The eurozone economy will reach a low this year, but will accelerate in the coming two years the European Commission predicts.

The commission said in its twice-yearly economic forecast that GDP growth in the 12 eurozone countries would drop to 1.3 percent this year from 2.1 percent in 2004.

But the economy will take an upward swing next year, reaching 1.9 percent in 2006 and 2.1 percent in 2007.

The growth estimates are a bit better for the whole bloc (25 countries) reaching 1.5 percent in 2005, 2.1 percent next year and accelerating further to 2.4 percent in 2007.

The fastest growing economy in the union is Latvia, estimated to grow 9.1 percent this year, followed by neighbours Estonia (8.4%) and Lithuania (7.0%).

Malta is the exception among new EU member states, with just 0.8 percent growth this year – the same as forecast for Germany.

At the lower end of the scale, Italy will see just 0.2 percent growth in 2005, Portugal 0.4 percent and the Netherlands 0.5 percent.

The commission estimated inflation in the eurozone would edge lower in the coming years, from 2.3 percent this year to 2.2 percent in 2006 and 1.8 percent in 2007.

The forecast pointed to "ongoing wage moderation" as an important reason for the drop in inflation rates.

The outlook is remarkable in light of this year’s rocketing oil prices, which went up by 45%.

The commission estimates a further 12 percent increase in oil costs next year, followed by a slight decline in 2007.

The euro-area unemployment rate is expected to fall from 8.6 percent this year to 8.1 percent in 2007.

For the EU as a whole, the profile is similar, from a higher starting point of 8.7 percent this year to 8.1 percent in 2007.