Accelerating growth in the EU predicted

The President of the European Central Bank, Jean-Claude Trichet, raised his organization’s official forecast for economic growth for the EU for the remainder of 2010 from 1.0% to 1.6%.

Analysis: While 0.6% may sound like a meager increase in absolute terms, in percentage terms, that represents a 60% increase in the EU’s growth rate.  That is a big deal.  Remember that it was the EU’s debt debacle in May that got investors all sweaty back in May.  Now the same characters who couldn’t manage their member’s finances 4 months ago are suddenly revising growth targets for 2010 upward.

What this indicates to me is that one of the world’s most important economies is at the very least: stable.  That is, the probability of a double-dip recession in Europe is very low right now.  And, in fact, the growth rate for their economy is being revised upward.  For the worldwide economy this is important and good.

Separately, for the EU to remain a competitive economy in the long-term (7-20+ years) it is going to have to generate growth rates much stronger than 1.6% or risk massive capital outflows.  Frankly, European countries and their economies just are not attractive places to invest and they have not been for almost 15 years.  At some point hopefully the EU will relax some of the massive restrictions on capital formation and business creation statutes so that innovative European ideas turn into businesses that have high growth trajectories and therefore attract investors’ capital.  But right now 1.6% sounds sexy.

Importance grade: 6.

Jason