Euro zone may see no growth

Euro zone growth already looks set to undershoot forecasts made only three months ago, with the euro's rise on the foreign exchange markets likely to hit exports in the coming months, the European Commission said on Wednesday.

    Regling: One percent growth a bit
    on the high side

    The European Union executive's quarterly report on the euro zone economy said recovery would only materialise slowly even though interest rates were conducive to growth.

    The report also warned that most states would miss budget targets this year.

    "It is likely that cumulative growth this year will be slightly weaker than expected earlier,'' Klaus Regling, the director general of the Commission's Economic and Monetary Affairs Directorate, told a press briefing.
    "The one percent growth we predicted in April looks a bit on the high side.''

    Regling said no new forecasts were yet available, but ruled out economic stagnation.

    A reduction in the Commission's growth forecast comes in the wake of recent euro appreciation, which makes exports less competitive on overseas markets.

    Budget disappointment

    Sluggish economic activity has seen government spending on welfare rises even as tax receipts fall. Against this backdrop, budget slippage looked likely in most EU states.

    "According to the Commission forecasts nearly all member states will miss their budgetary targets for this year.''

    The most significant shortfalls would be in Germany, France, Italy, and Portugal, it said. Germany and France broke the EU deficit limit of three percent of gross domestic product in 2002 and are widely expected to do so again this year.

    The EU executive again highlighted the risk that nominal deficits in France, Portugal, Italy and Germany could top three percent of GDP in 2004 if further action was not forthcoming. It also said the Dutch deficit could be close to EU limits in 2004.

    Belgium, Germany, Greece, France, Italy and Austria were expected to have debt levels that were worth more than 60 percent of their gross domestic product in 2003.
    Economic recovery plan

    Italian Prime Minister Silvio Berlusconi, whose country holds the current EU Presidency, appealed on Wednesday for an increase in public and private investment to galvanize the faltering EU economy. 

    He told the European Parliament here it was crucial to promote European competitiveness by boosting investment -- notably in the transportation sector - in conjunction with financial institutions such as the European Investment Bank.
    "This strategy should be based essentially on policies aimed at revitalizing European (transportation) networks," he told lawmakers.


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