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5/17/06

FreshPlaza: German hoarding will give short-term boost to EU economy

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German hoarding will give short-term boost to EU economy

The EU economy will grow stronger in 2006 than in previous years, according to the Commission's spring economic forecast. The boost will be partly due to stockpiling before a major VAT rise in Germany. The EU economy will grow by 2.3% in 2006, the forecast says. Due to high growth rates in the new member states, where Estonia and Latvia take the lead with rates of more than 8 % each, the Euro area will lag slightly behind the EU as a whole and grow by only 2.1%. After growth rates of no more than 1.6% and 1.3% in 2005, this is a positive sign. Brighter expectations for Germany are partly based on expected hoarding before a planned 3% VAT raise on 1 January 2007. The German economy is expected to stagnate after the raise, and the country's growth may go down to as little as 1.0%, the lowest in the EU. This stagnation in the EU's biggest economy will affect growth both in the euro area and in the whole EU, bringing it down to 1.8 % and 2.2%, respectively.

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