European Commission cuts growth forecast

EUROPE AGAIN cut its growth forecast yesterday, blaming the international economic turmoil and raising the pressure on the European Central Bank to reduce interest rates.

The latest round of gloomy statistics reflect lower economic expectations from the biggest EU nations, including Germany where the slowdown in 1999 is expected, according to a separate EU document, to be "more pronounced than in most other member states".

The European Commission expects euro zone gross domestic product to rise by just 2.2 per cent in 1999 and 2.7 per cent in 2000, compared with forecasts last autumn of 2.6 and 2.9 per cent respectively.

Growth in all 15 EU countries was also marked down at 2.1 per cent for 1999 as opposed to 2.4 per cent predicted earlier. The UK economy is also expected to perform worse than predicted this year; growth for 1999 is expected to be 1.1 per cent, rather than the 1.3 per cent forecast last October. But for 2000, Brussels expects the UK economy to grow at 2.3 per cent, as opposed to the 2.1 per cent it predicted last year.

There was also praise for the UK in Commission recommendations on member states' economic policy guidelines, which singled out the UK employment rate as one of the best in Europe. But the document added: "Growth of small business, innovation and research and development expenditure are all relatively weak."

Germany's slowdown is blamed on the country's greater-than-average exposure to world trade and some domestic influences, including the depressed construction industry.

Although the new figures put further pressure on the euro, the Monetary Affairs Commissioner, Yves-Thibault de Silguy, insisted that its current level was "not a source of concern".