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EDITIONS
Wednesday, 25 April, 2001, 12:30 GMT 13:30 UK
EU downgrades growth estimate
ECB President Wim Duisenberg
The data will impact Wim Duisenberg's pending interest rate decision
The European Union has trimmed its outlook of the economic growth of the fifteen nation block, blaming the US and Japanese slowdowns.

The report by the European Commission also said that inflation would remain above the European Central Bank's target of 2% for "a longish period".

Eurozone economic forecasts 2001
Inflation 2.2%
GDP growth 2.8%
Unemployment 8.5%
The data comes ahead of a decision by the European Central Bank whether to cut interest rates on Thursday.

Although signs of a slowing economy encourages a rate cut, the inflationary data will have the reverse effect.

The ECB must balance the need to boost a flagging economy against avoiding inflationary pressures for all of the twelve eurozone countries within the single currency area.

The ECB has come under mounting pressure as the only major central bank not to cut interest rates so far this year.

Downgrade

According to the EU's new economic forecast, the overall growth for the eurozone will be 2.8% and 2.9% in 2002 - the same rate it is forecasting for the whole of the 15 nation EU area.

EU growth 2001
Austria 2.5%
Belgium 3%
Denmark 2.1%
Finland 4%
France 2.9%
Germany 2.2%
Greece 4.4%
Ireland 7.5%
Italy 2.5%
Luxembourg 5.6%
Netherlands 3.4%
Portugal 2.6%
Sweden 2.7%
Spain 3.2%
UK 2.7%
This has been lowered from the EU's November predictions of 3.1% growth in 2001 and 3% in 2002.

Despite the sharp revision, the Commission is more optimistic than recent estimates given by the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD) and the ECB itself.

"Economic fundamentals remain good," noted the EU, adding that deregulation has left the member countries in a better position to absorb the external slowdown.

The IMF has suggested that growth within the eurozone will slow even faster, to 2.4%, and has urged the ECB to cut rates.

Spluttering growth engine

The EU blamed the lower growth figures on the "spluttering...in the US growth engine" and the "inability" of the Japanese economy "to take off decisively".

The EU also suggested that the US economy may be heading for a hard landing.

"The long-awaited soft landing of the US economy is less soft than expected."

The Commission slashed its US economic growth forecast for 2001 to 1.6% from 3.3%.

But it expected the decline to be short-lived and forecast a rebound to 3% in 2002.

Vulnerable Germany

Within Europe, Germany was highlighted as being harder hit than its peers such as Italy and "particularly vulnerable," to an outside shock.

According to the report, Germany's growth will fall to 2.2% this year compared to its previous estimate of 2.8%.

Ireland, the UK and Scandinavia are the other countries most exposed to the US slowdown, with Scandinavia especially vulnerable in the technology sector.

Inflation is forecast at 2.2% for the twelve nations that make up the euro zone.

Employment prospects remain strong, with the euro zone jobless rate set to fall to 8.5% in 2001 from 8.9% last year.


Terror's impact

Signs of a slowdown

Rate cuts

Analysis

Key players

FULL SPECIAL REPORT
See also:

25 Apr 01 | Business
22 Nov 00 | Business
19 Jan 01 | Business
20 Apr 01 | Business
24 Apr 01 | Business
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