Brusels: Financial market turmoil, a slowing US economy and soaring commodity prices will curb euro zone growth more than expected this year and next and inflation will stay above the ECB target, the European Commission said.
In its twice-yearly economic forecasts for the euro zone and the 27-nation European Union, the Commission said growth in the 15 countries sharing the euro would slow to 1.7% this year from 2.6% in 2007 and to 1.5% in 2009.
In February, the Commission forecast growth at 1.8% this year -- already a cut from the 2.2% initially forecast for 2008 in November 2007.
“The moderation in growth results from the persisting turmoil in the financial markets, the marked slowdown in the United States and soaring commodity prices, all of which are taking their toll on global activity,” the Commission said.
The latest Commission forecast is in line with the mid-point of the European Central Bank’s growth range forecast for 2008 but below the ECB’s 1.8% growth view for 2009.
The Commission expects inflation, which hit a record high of 3.6% year-on-year in March, to accelerate to 3.2% in the whole of 2008 from 2.1% in 2007 and to ease to 2.2% in 2009.
Price growth is mainly being fuelled by a surge in food and oil prices which is also dampening consumer demand and therefore growth, said the Commission, which in February had forecast 2008 inflation at 2.6%.
The ECB, which wants inflation to be just below 2% over the medium term, forecast on March 6 that prices would grow by 2.9% in 2008 and 2.1% in 2009.
Some of the upward impact on prices from more expensive commodities was offset by the stronger euro, the Commission said.
It assumed that while the euro would appreciate by 13% in 2008 against the dollar, its nominal effective exchange rate would increase by 5.5% , leading to an appreciation of 4.75% in real terms.