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Eurozone to outrace US as economic growth driver

May '07
The eurozone will in 2007 take over from the US as the driver of world economic growth, according to Paris-based think tank the OECD, with a strong performance by Germany giving Europe the edge.

The 13-state strong European currency union will see 2.7 percent GDP growth this year compared to 2.1 percent in the US, the OECD predicted in a report out Thursday (24 May). Last year the euro states lagged 0.5 percent behind the US.

"Europe [is] taking over the baton from the United States," OECD chief economist Jean-Philippe Cotis said. "A vibrant German-led recovery has remained on track...[and] the so-far lagging Italian economy has been sharing in the upswing."

The bounce-back stems from a gradual increase in household and corporate spending, as well as robust exports. Falling unemployment - from 7.8 percent last year to 7.1 percent this year - is another "noticeable bright spot," the study says.

By contrast, US results are being held back by problems in the housing market, which is suffering from an excess of supply. But the OECD predicts a "progressive return to economic normality" that should see America again nose ahead of the eurozone in 2008.

The European upswing could spell good news for political projects, such as Germany's attempt to revive the EU constitution - at the time of the EU's 50th birthday in March, some analysts said stagnating economies had contributed to euroscepticism in recent years.

But the European picture is not entirely rosy: unemployment still remains much higher than in the US; inflation risks are likely to see the European Central Bank hike rates again this year and an ageing population is increasing pressure on the public purse.

"The balance of risks to inflation is towards the upside," the OECD says, recommending another 0.5 percent increase in the cost of borrowing in two tranches of 0.25 percent by the end of the year.

Looking at the economic dangers of ageing, the think tank forecasts that Belgium, Greece, Ireland, Luxembourg, Portugal and Spain will all be spending over 10 percent of their GDP on pensions and geriatric health care by 2050.


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