THE economy across the European Union is recovering faster than expected and will likely grow by a solid 1.8 percent this year, driven by surprisingly strong domestic demand, the European Commission said yesterday.

However, the commission warned that the "recovery remains fragile" in the aftermath of the global financial crisis.

"We have now solid ground under our feet," Economics Commissioner Olli Rehn said. But he said "There is no reason to shout for victory. Instead, we must remain alert and vigilant in the face of remaining uncertainties."

The interim growth figure released yesterday was around three quarters of a percentage point higher than the EU's spring forecast. It was based on figures from the EU's seven largest economies, which account for some 80 percent of the bloc's economic activity.

Rehn said he expects growth to moderate in the second half of the year, but he said a double-dip recession is unlikely.

The commission's forecast for inflation in 2010 was unchanged at 1.8 percent.

Rehn said he was particularly pleased by the rise in domestic demand.

"This rebalancing is encouraging in light of expected softening in global demand in the second half of the year and should also bode well for job creation in Europe," he said.

Growth in Germany, Europe's largest single economy, was strong in the first half.