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EU says US slowdown to have „limited” effect on euro Economy

The European Commission said the US economy's slowdown should have only a „limited” effect on the expansion in the dozen euro nations.

The euro region is now stronger than at the time of previous US downturns and the US share of Europe's trade market has diminished, the commission, the European Union's executive arm, said in a quarterly report released yesterday in Brussels. Risks to the outlook would grow if the US slowdown deepened, it said. „While slower growth in the US will undoubtedly have an impact on the rest of the world, our analysis suggests that its effect on activity in the euro area should be limited,” Klaus Regling, head of the commission's economics department, said in the report.
The report said that while the European economy would slow next year after the best performance in six years in 2006, growth would remain robust and be able to „withstand negative influences” such as the slower US expansion, rebounding oil prices and the imposition of a higher sales tax in Germany. „The recovery in consumption now seems firmly established, as a strengthening labor market and improving consumer confidence buttress household spending,” the report said.

The US economy has cooled significantly in recent months, with growth slowing to 2.2% in the third quarter from 5.6 percent six months earlier, as a recession in the housing sector and a slump among car makers take hold. In a special study, the commission said that while the European and US economies remained closely linked the likelihood of a „decoupling” was greater this time because the euro-area economy was enjoying a domestic-driven expansion as unemployment fell to a five-year low. At the same time, given the US slowdown was driven by domestic concerns rather than a problem in the world economy as a whole, only 5% of European exports would be „more-or-less strongly” affected by weaker US demand, the EU said.
Greater trading relationships with Asian economies also mean the US isn't as an important a market for European products as it once was, the report said. The US weakness may even be beneficial if it leads to a correction in the so-called trade imbalances such as the near-record US current-account deficit, the EU said. Still, the commission said the European economy could become more vulnerable if the US slowdown worsened or sparked a surge in the euro's value. „A more severe downturn in the US economy could lead to a deterioration of the outlook for the euro-area,” the report said. (Bloomberg)