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| Sunday, 6 March 2005 |
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IMF slashes eurozone growth forecasts The International Monetary Fund (IMF) has slashed growth forecasts for the eurozone, and particularly Germany, according to draft figures obtained by Financial Times Deutschland, the FT's German sister paper. The eurozone's economy will grow this year by 1.6 per cent, down from the 2.2 per cent forecast by the IMF late last year. Germany's economy will grow by only 0.8 per cent, down from 1.8 per cent forecast earlier. Gloom about the outlook for continental Europe's economy intensified as German unemployment soared to a postwar record and other data pointed to still-sluggish industrial growth in the months ahead. The data set back hopes of an improvement in the eurozone's economic performance this year even though the rise in the headline German unemployment figures to an unadjusted 5.22m in February was partly the result of labour market reforms introduced by Chancellor Gerhard Schr"der's government. The eurozone purchasing managers' index for February, regarded as a good forward-looking indicator, again pointed to only modest growth in industrial production. The figure of 51.9 "remained well down on that seen throughout much of last year," according to NTC Research, which compiles the figures. Economists blame the deterioration in the outlook on high oil prices, the strength of the euro, and the vulnerability of the eurozone to a slowdown in the rest of the world. The sluggish growth will almost certainly persuade the European Central Bank to keep interest rates at 2 per cent for some months despite rises in the UK and the US. But the ECB will be comforted by an improvement in the inflation outlook. A first official estimate of eurozone inflation in February of 2 per cent represented yesterday an increase after January's revised 1.9 per cent, but ECB forecasts this week are expected to project inflation this year falling within its price stability definition of "below but close" to 2 per cent. Earlier on Tuesday the new head of the German government's council of economic advisers, Bert Ruerup, said he expected growth of 1 per cent this year, down from the council's earlier forecast of 1.4 per cent. Asked if he would follow Ruerup's lead, Wolfgang Clement, German economy minister, ruled out reducing the government's growth prediction of 1.6 per cent for 2005. The latest official IMF growth predictions will be presented at the Fund's spring convention in mid-April. Economic confidence in the EU has slumped to its lowest levels since last year's Madrid bomb attacks, although the UK and new EU member states stand out as bright spots, according to the European Commission. Reuters |
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