EC: Euro-zone economy faltering

  • 2003-04-17
BRUSSELS

The euro-zone economy is set for weak growth in the first six months of 2003, according to fresh European Commission data, but officials said signs of a swift end to the Iraq war had improved the outlook for the second half of the year.

The EC said growth in the euro-zone economy would be between 0.2 percent and minus 0.2 percent in the first quarter - 0.1 point below its previous estimate - rising to between 0.1 and 0.4 percent in the second quarter.

"Renewed weakness in domestic demand, as captured by car registrations, explains this slight downward revision of the first-quarter range compared to the previous release," a Brussels-based executive said in a statement.

Referring to the second quarter, the commission said, "The slight downward revision compared to the previous release is due to the lack of momentum in the U.S. economy."

On April 8, the European Commission slashed its euro-zone growth forecast for 2003 to 1 percent, and warned the 12-nation area could fare even worse if the war in Iraq dragged on.

However, EU Economic Affairs Commissioner Pedro Solbes acknowledged that such a prospect was now looking less likely, following the apparent collapse of Iraqi leader Saddam Hussein's regime.

The so-called "second scenario" - a prolonged conflict leading to global recession - was now much less probable, he added. "We've always said the second scenario was not very likely, and today we think it's even less likely than we did yesterday."

Solbes's top official, Klaus Regling, also said the war had improved the euro-zone's outlook. "This should help economic developments through a reduction, although not necessarily disappearance, of geopolitical uncertainties - lower oil prices and an end to the stock market slump," he said.

However, Regling warned, "It remains nevertheless to be seen how much post-bubble adjustment the world economy still has to go through even after a benign outcome to the conflict in Iraq."

Solbes himself echoed these concerns, saying: "The key issue is to assess the underlying strength of the global economy, once the 'noise' of Iraq is removed."

He said the commission's latest forecast of 1 percent growth for the euro zone this year had assumed the world economy would pick up significantly once geopolitical tensions abated and confidence returned.

"Low interest rates and low inflation should help the global economy to recover in the second half of 2003 and in 2004, although some imbalances in the world economy are worrying," he said.