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Eurozone growth on track, despite slowdown risk:Posted By: Martha Buffett BRUSSELS (AFP) - Economic recovery is on track in the 12 countries which share Europe's single currency, but growth could lose steam if a housing price bubble bursts, the European Commission said.In a quarterly report on the eurozone economy, the European Union's executive arm stuck with its estimate for the bloc of 1.9 percent growth this year, after 1.3 percent last year. "This forecast is based on both a positive outlook for exports and -- more significantly -- on a progressive firming of domestic demand," said the head of the commission's economic department, Klaus Regling. On a quarterly basis, growth bounced back in the first three months of this year after a weak end to 2005, and is expected to gather momentum in the coming quarters. The commission said growth might even prove stronger than expected, judging by recent surveys of the main economic actors. The improving outlook for eurozone growth is underpinned by healthy growth in exports, which have become more competitive on international markets and are benefitting from strong economic growth in China, Japan, Latin America and the United States. Meanwhile, domestic demand is also improving thanks to growing corporate investment but also increasingly due to household consumption, which has long held back recovery in the eurozone. Consumers are becoming less hesitant to open their wallets as confidence improves because companies are hiring more workers, the commission said. However, striking a note of caution, it warned that a housing price boom in some countries risks fuelling an economic bust. With interest rates at all-time lows, Spain, France and Ireland have clocked the strongest growth in house prices in recent years while Belgium and Finland have seen "more modest" increase. Developments in those countries contrasted with trends in Germany, Austria and, to a lesser extent, Portugal which saw prices contract. Soaring house prices go hand in hand with indebtedness and could spell trouble if homeowners find they have overstretched their finances, which could have implications for the wider economy. "Rapidly rising house prices can leave an economy vulnerable to a subsequent price correction with ensuing negative wealth effects," Regling said in a preface to the report. "Irrespective of whether such a correction occurs or not, high levels of debt leave households vulnerable to adverse shocks to disposable income and interest rates," he added. "While the probability of these risks materialising remains low, if they do, they could hamper growth." The commission warned that in particular there was a risk if interest rates began rising sharply, which could strain some households' overstretched finances. The European Central Bank started in December gradually lifting interest rates from a historic low of 2.00 percent to 2.50 percent and is expected by most economists to keep raising the cost of borrowing in the eurozone over the course of the rest of the year. Courtesy Of: Yahoo! News The information reported above is property of Yahoo! inc. and reprinted or modified with legitimate permission. We thank Yahoo! inc. for the kind cooperation with us and other shareholders. |
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