The eurozone has a record of sluggish growth

Solid world trade, a weakening euro and better consumer demand were all improving the outlook for 2004, the EC said in a quarterly report.

But the EC's economic affairs chief, Joaquin Almunia, warned that he could not make predictions for 2005.

And he said a resurgence in oil prices risked inflicting "more serious damage" on the zone's 12 nations.

Higher oil prices are contributing to the risk of eurozone inflation, Mr Almunia said.

Producer prices rose 0.6% in May from the previous month.

Consumer demand

Still, Mr Almunia's confidence reinforces hopes that the EC's previous prediction could prove conservative.

The first three months of 2004 had produced 0.6% growth, ahead of expectations, and some of the uncertainties "which had hitherto weighed on (corporate) confidence" had lifted, he said.

"Overall, recent data suggest that our spring forecast - considered optimistic by some commentators at the time - now appears to have been somewhat on the low side," he said in the report.

As well as exports and a lower euro, consumer demand had broken out of its long stagnation - although it remained fragile.

"The recovery (in the eurozone) is not yet self-sustaining and, in the context of a maturing global trade cycle, robust domestic demand will become increasingly necessary," Mr Almunia said.

'Window of opportunity'

Among other risks, he said, a return to the surge in oil prices could prove dangerous.

And he took the chance to criticise the zone's member states for breaching the rules on budget deficits.

Without prompt action, as many as half the 12 would be running deficits by 2005.