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EU Upbeat on Economy

The euro area's economy is set to grow at a brisk pace this year, expanding by 2.4% after "a remarkable year" in 2006, the European Commission predicted as it raised its growth figures for both the EU and the euro area last year.

In 2007, it kept its forecast for the 13-nation euro zone to grow 2.4% but said the entire EU would grow by a better-than-expected 2.7%. It previously had said the EU would grow 2.4% this year.

But it increased its figures for growth last year, saying the euro zone grew 2.7% and the EU by 2.8%. In November, it put euro growth at 2.6% and EU expansion at 2.8%.

This shows the European economy is now back on track, speeding up from 2005 when the euro area grew 1.4% and the EU grew 1.7%.

Domestic demand is now driving growth across Europe as more people find work, EU economists said. Three million jobs were created last year, they said, with 2 million of those in the euro area.

This allowed Europe to weather record-high energy prices over the summer and made it more resilient to major influences on global growth, such as the EU slowdown.

The German economy, Europe's largest, would bounce back from flatter growth in the start of the year as a sales tax hike bites into shopping habits, the EU executive predicted.

Inflation should calm down to 1.8% in the euro area this year as oil prices decline, it said. This is below the European Central Bank guideline of just under 2%, easing pressure on the bank to increase interest rates to calm the risk of price rises.

While euro inflation last year was 2.2% -- the same as 2005 -- this was largely the result of high oil prices, the Commission said, because core inflation was steady at around 1.5%.

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