updated 7/2/2004 9:48:08 AM ET 2004-07-02T13:48:08

The euro-zone's economic recovery is accelerating faster than expected and growth is likely to exceed the 1.7 percent forecast for this year, the European Union's head office said Friday.

"The recovery is now proceeding on increasingly firm ground," said Joaquin Almunia, the EU's economics commissioner.

"After sending somewhat mixed signals in the first months of the year, confidence and leading indicators have now taken a more upbeat tone."

Growth in the 12 nations that use the euro as their shared currency was 2.3 percent in the first quarter compared with the same period in 2003, above forecasts of 2.1 percent. Private consumption in the first quarter rose 0.6 percent from the last quarter of 2003.

However Almunia urged caution for 2005, pointing to still fragile private consumption and the risk of higher oil prices.

In the European Commission's quarterly economic report, Almunia said half of the euro zone countries risked running up budget deficits over the next two years that exceed the bloc's target of 3 percent of gross domestic product.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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