EU Raises 2011 Growth Forecast, Sees Inflation Accelerating

The European Commission raised its economic-growth forecast for 2011 and said higher oil and commodity prices will keep inflation above the European Central Bank’s limit for most of the year.

Gross domestic product in the euro region may increase 1.6 percent in 2011, above an earlier forecast of 1.5 percent growth, the Brussels-based commission said in a report published today. Inflation will average 2.2 percent this year, the agency forecast, up from a November estimate of 1.8 percent.

The region’s economy is gaining strength after expanding less than economists forecast in the fourth quarter. As companies increase output and hiring to meet export orders, consumers are growing more optimistic even as governments toughen budget cuts. Europe’s services and manufacturing industries grew at the fastest pace in more than four years last month.

“The industry in Europe’s core economies is doing very well if you look at orders, world trade and air and sea cargo figures,” said Martin van Vliet, an economist at ING Groep NV in Amsterdam. “But the increased oil price and higher inflation will lower purchasing power and since consumers are already facing austerity measures, this holds back consumption growth.”