The European Commission left its euro zone growth and inflation forecasts for 2006 unchanged from its previous estimates published in November, despite disappointing activity in the fourth quarter of last year In its first set of interim forecasts, based on figures from France, Germany, Italy and Spain, the commission noted that euro zone growth fell short of expectations in the fourth quarter, but added that "upbeat survey data" should confirm that this was a temporary slowdown "Economic activity is thus projected to bounce back in the first quarter of 2006 and to gather momentum in the course of the year, owing to brisk global growth combined with a broadly supportive policy mix," it said The commission said domestic demand is expected to be the main driver of growth On interest rates, it said: "The stance of the macro-economic policy mix is broadly supportive to foster private sector demand." The euro's exchange rate against the dollar has eased "to a level which has put companies ... in a more favourable competitive position", while oil prices, although still high, "are now at a level comparable to that of last autumn" But it cautioned that downside risks to the growth outlook have not abated since it released its last set of forecasts on Nov 17 It said that "oil prices are evolving in an ever more volatile manner and the risk of further significant rises cannot be ruled out" It added: "Global current account imbalances continue to be a risk to the international outlook, especially if they are resolved by abrupt exchange rate adjustments between major currencies." On the euro zone inflation front, the commission kept its 2006 forecast unchanged at 2.2 pct By country, it raised its growth forecast for Germany to 1.5 pct from 1.2 pct, and for France to 1.9 pct from 1.8 pct, but cut its projection for Italy to 1.3 pct from 1.5 pct, and for Spain to 3.1 pct from 3.2 pct Outside the euro zone, the commission increased its UK growth forecast to 2.4 pct from 2.3 pct