It seems that after years of subdued economic dynamism and high unemployment, the EU has entered a new expansion regime allowing for a sustainable decline in the rate of jobless without triggering excessive price tensions. In my speech, I will present what is our view for EU short-term economic prospects and what has been the contribution of the euro. Although energy only accounts for a small share of the consumer price basket, the sharp rise in oil prices is responsible for virtually all of the acceleration in the monthly headline inflation rate seen over the last 15 months. As regards GDP growth, our econometric simulation points to a limited negative impact by 0.2 and 0.3 percentage point this year and next. European economies are now less vulnerable to oil price upheavals, as oil dependency has decreased drastically.
Domestic demand is likely to remain the basis of the expansion in the next two years.
One could have envisaged faster growth rates for investment in the face of falling real unit labour costs. This is due to the revival in growth outside the EU and to the cheap euro. The positive contribution of net exports is however, forecast, to return to neutral over the forecast horizon. Such a strong rise for an extended period of time represents the best performance since 1987-1990. The higher than expected oil price and the weaker than expected euro are the two major reasons underlying the hike in consumer prices observed in 2000.