Business blamed for lack of growth

European companies may be to blame for a lack of growth within the euro zone, according to an EU Commission report.

Major European companies, including those posting record profits during 2004, are giving money back to investors or buying back shares rather than reinvesting it into more jobs or investing in technology.

"When investment picks up, employment goes up. Since employment is not increasing so strongly in the past few years, it could be another explanation for the lack of growth", said Klaus Regling, the Director General for Economic and Financial Affairs.

His estimate for euro zone growth during the first quarter of 2005 is 0.5%, following Commissioner Joaquin Almunia's estimate during the Spring European Council two weeks ago.

Other factors for less-than-satisfactory growth during the first quarter as well as the rest of 2005 include high oil prices, the strength of the Euro, and global trade imbalances.

According to the report, the US's total trade imbalance is estimated to reach 5.9 per cent of GDP during 2005. As the global economy adjusts to that imbalance, the report predicts possible "disorderly movements" in exchange rates.

A strong Euro compared to the US dollar has already hurt EU exports, but the report said that strength could partially protect euro zone economies from feeling the pain of high oil prices.

The report said inflation, which averaged about 2 per cent during 2004, has shown signs of dropping but that oil prices pose a risk in the short-term for an increase in product prices and a decrease for households to be able to afford to buy the products.

Another factor in weak euro zone growth is the lack of investment in technology, especially in high technology and computers. The US has long been a leader in tech sectors, with the EU falling behind, a factor which is becoming even more obvious in the current state of the economy.

"Technology investment is clearly an area where we must do better", said Mr Regling.

He said overall net investment has fallen in recent years due to increasing depreciation. According to the report, it is the increase of investment in products with short lifespans - especially computers that are only "up to date" for a couple of years and thus depreciate quickly - that is having its effect now.

But Mr Regling has hopes that positive signs seen in industry, manufacturing and retail sectors during January, February and March will show a change in the tide, or at the very least, holding steady.