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Last Updated: Sunday, 6 July, 2003, 10:16 GMT 11:16 UK
Europe warns on growth targets
EU Commissioner for Finances, Pedro Solbes

The European Commission has predicted an even gloomier outlook for the eurozone than its previously cut growth forecasts.

"It is unlikely that our former estimate of 1% economic growth for the euro zone in 2003 can be reached, "said Pedro Solbes, Economic and Monetary Affairs commissioner.

In April, the European Commission revised downwards its forecasts for the eurozone's gross domestic product (GDP) growth, from 1.8% to 1%.

Mr Solbes said growth in the 12-nation zone could now be as low as 0.7%, depending on how the second half of the year develops.

Worst case scenario

Mr Solbes said stagnant growth in the first three months of the year had continued into an "anaemic" second quarter.

"When we predicted 1% growth in April, we warned of risks to the downside and the upside," he told reporters at a news conference with the Italian economy minister Giulio Tremonti.

"The downside risks have materialised."

Italy took over the rotating presidency of the European Union this week, amid growing concern about the weakness of economic recovery in the eurozone.

Figures for the first three months of 2003 showed the worst quarterly economic performance since the last three months of 2001.

Only growth in France and Spain managed to offset contractions in Italy and Germany, preventing shrinking in the zone as a whole.

'New Deal'

Last week, the European Commission warned that a strong euro, which recently hit record peaks against the dollar, could hurt exports in the coming months as they become more expensive to overseas markets.

And last month, the European Central Bank president Wim Duisenberg cut back the ECB's forecasts for eurozone growth to 0.4-1.0% in 2003 from the 2% he had previously predicted.

"Economic growth in the first half of 2003 is likely to have been weak, very weak, and expectations for annual average growth of this year and 2004 have had to be scaled down," Mr Duisenberg said.

Italy is hoping to boost growth among the 12 nations with a "New Deal", similar to the deal which boosted the US economy after the Great Depression in the 1930s.

The current plan would see infrastructure projects such as new transport links funded by raising money via European Investment Bank bonds.

But some ministers have warned the fund-raising would be difficult to structure.

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