Brussels slashes forecasts for European growth

The European Commission yesterday slashed its growth forecasts for next year as fresh data showed little evidence of an upturn in the Continent's two largest economies.

The 15-nation EU is expected to grow 1.7 per cent this year and just 1.4 per cent next year. This is a sharp cut from its forecasts of 2.8 and 2.9 per cent respectively just eight months ago. "On top of the unfolding slowdown, the 11 September terrorist attack worsened the outlook as it created a feeling of insecurity and uncertainty," the Commission said.

Weak growth would lead to rising unemployment next year, while inflation should fall below the European Central Bank's 2 per cent target. The Commission said lower inflation, low interest rates and planned tax cuts would help demand.

The Commission also expected member states' budget positions to worsen for the first time since 1993. Germany's deficit is forecast to hit 2.7 per cent of GDP in 2002, close to the 3 per cent limit under the EU's Stability and Growth Pact. Germany, which is forecast to grow just 0.7 per cent next year, saw another fall in its key Ifo business climate survey to an eight-year low. Meanwhile, French consumer spending fell 0.4 per cent in October.

In contrast there was a fall in new jobless claims in the US, while the Michigan consumer confidence survey enjoyed its second successive monthly rise.