Brussels more downbeat on growth

European economies are slowing but how rapidly?

The European Commission has again downgraded its forecast for eurozone growth this year, blaming weakness in the US economy and financial turmoil.

Brussels now believes the 15-nation eurozone will grow 1.7% this year, below its previous projection of 1.8%.

At the same time, it believes inflation will accelerate to 3.2% for the year as a whole compared to 2.1% in 2007.

Inflationary fears have led the European Central Bank (ECB) to keep interest rates on hold at 4%.

Latest revision

Policymakers have held firm in the face of growing calls for the cost of borrowing to be cut to boost leading European economies which are clearly slowing.

Monday's forecast marks the latest downward revision to growth in recent months as the prospects for the US economy have worsened and the credit crunch has deepened.

The moderation in growth results from persisting turmoil in the financial markets, the marked slowdown in the US and soaring commodity prices European Commission statement

As recently as November, Brussels was forecasting growth this year of 2.2%.

Growth of 1.7% in 2008 would represent a sharp fall from last year's 2.6% increase.

"The moderation in growth results from persisting turmoil in the financial markets, the marked slowdown in the US and soaring commodity prices, all of which are taking their toll on global activity," the Commission said in its latest update.

Outside the eurozone, Brussels now believes the UK economy will grow 1.7% this year, well below the government's own 2.25% forecast.

However, the European Commission's forecast could be seen to be on the optimistic side after the IMF predicted growth of just 1.4% this year.

At 3.2%, annual eurozone inflation would be well above the ECB's 2% target.

Consumer prices have been driven up by the rising cost of fuel and food although the ECB's own forecasts suggest inflation will hit 2.9% for 2008 as a whole.

E-mail this to a friend

Printable version