Slower Growth and Higher Prices Predicted in Europe

The European Commission has indicated that a negative outlook for the EU economy is partly due to global market turbulence and the forecast US economic slow down becoming a reality.

In an interim forecast on the EU’s economy, the Commission revised downwards its 2008 growth expectations for the 27 member states to two percent, and for the 15-member euro zone to 1.8 percent, both 0.4 percentage points lower than predicted last November.

The slowdown in growth is explained partly by the situation in the financial markets with uncertainty, tighter credit conditions and a cooling global economy, specifically in the USA, along with higher commodity and oil prices.

During the last few months oil and food prices have contributed to more than half of the total inflation in the Euro block, leading to the upward revision in inflation forecasts across the board. As a result in the EU’s 7 largest economies, growth indicators have been revised downwards. Germany is facing a significant economic slowdown with a previous forecast now revised downwards from 2.1 percent down to 1.6 percent. France has a similar forecast with revised growth figures for 2008 expected to be 1.7 percent rather than 2.0 percent. France’s inflation rate has reached 3.2 percent in January, which is the highest level in more than a decade.

The Commission President, Jose Manuel Barroso, in a more optimistic mood, expressed his belief that the EU is better prepared to weather the financial turmoil that the world economy is now facing, than many other developed countries.

However, some analysts are saying that the current situation is a dilemma for the European Central Bank, which has kept interest rates at 4 percent since last June due to concerns over rising inflation, while the United States Federal Reserve cut interest rates to boost the US economic growth.

Margot Parker, Director
www.eurocom-consult.com

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