Economies using the Euro currency will grow by around 1.6 per cent in 2011, an economic forecast for Europe has predicted.

The Euroframe group of research institutes across Europe, including the National Institute for Economic and Social Research in the UK, said from the latest available data it could tentatively forecast 1.6 per cent gross domestic product (GDP) growth in the Euro area in 2011 and 1.7 per cent in 2012.

The group said economic conditions would improve in 2012 increasing the rate of growth while the modest recovery from the recession was put down to the unwinding of central bank and government economic stimulus measures, limited domestic demand, adjustments in household balance sheets and the implementation of austerity measures on public spending.

The Euroframe group predicts the UK economy to grow 1.7 per cent this year and in 2011.

A simulation exercise to estimate the impacts of changes in fiscal policy in the Euro area suggest the impact will be to shave 0.5 per cent of GDP growth in economies in 2011 and 2012.

The group said its forecasts would be ‘critically’ affected by the failure of EU and International Monetary Fund (IMF) intervention in Ireland to calm the markets and prevent uncertainty spreading to other countries in the Euro area.

On 22 November, the Organisation for Economic Co-operation and Development (OECD) said growth in European Union countries (including the UK) was 0.4 per cent in the third quarter of 2010.

The OECD’s forecast for the Euro area is for economies to grow 1.7 per cent in 2011 and 2 per cent in 2012, higher than the Euroframe forecast.

In the UK, the OECD forecasts the same level of growth at 1.7 per cent in 2011, down on a forecast  of 2.5 per cent made in May.

On the UK government’s spending plans, the organisation said: “Fiscal consolidation is underway with detailed plans set out in the spending review. The government’s ambitious medium-term plan has significantly reduced fiscal risks and could, in combination with efficiency improvements in health spending and structural reforms, support growth in the longer term.”

Despite this, the OECD said this substantial but necessary fiscal tightening would contribute to the subdued growth in 2011, with momentum building in 2012 when the OECD expects exports to increase.

© Fair Investment Company Ltd