Eurozone growth to moderate next year as fiscal tightening kicks in

Despite a robust expansion in output and healthy headline growth figures, the euro zone economic growth will moderate next year, but gain traction again in 2012, the European Commission said in a report released on Tuesday.

Signs of a softening global environment and the onset of fiscal consolidation entail that activity is likely to moderate towards the end of 2010 and in 2011, but to pick up again in 2012 on the back of strengthening private demand, the Commission's quarterly report on the euro zone economy noted.

The report cautioned that encouraging headline figures do not tell the whole story as the recovery is still being shaped by complex economic forces.

The Commission said the recovery also appears to be broadening out. While export growth has been solid for some time, the euro area economy is now entering the next phase, whereby the pick-up in exports starts to spur investment demand, especially for equipment.

The report says there would be improvement in the national public finances of member states and that individual governments' deficits will fall though debt levels are still trending upwards.

The report urges member countries to attach high importance to fiscal consolidation given the strength of the sovereign debt crisis that shook the economy.

The task of rebalancing the economies burdened by high external deficits and/or debts is as challenging as it is necessary.