Economic Forecasts: Sharp Downward Revision of Growth Forecasts for 2005

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Further rises in oil prices, uncoordinated exchange rate adjustments and a further drop in consumer confidence are among the principal risks weighing on the spring forecasts. The basic hypothesis used by the Commission puts oil prices at 50.9 dollars a barrel in 2005 and 48 dollars in 2006. A further increase in the cost of oil would put negative pressure on forecasts, according to the Commissioner. Regarding euro-dollar exchange rates, the forecasts are based on an average rate of 1.31 dollars for a euro in 2005 and 1.32 dollars in 2006.

The Commission's optimism for 2006 relies on stronger domestic demand and, especially, a sustained acceleration in investment. Private …