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Wed, Mar 06, 2002 - Page 21 News List

European Union boosts growth forecast for this year


European financial policy makers boosted their forecast for economic growth this year, saying interest-rate cuts and government spending have laid the groundwork for a long-lasting recovery.

The economy of the 12 nations sharing the euro will probably grow 1.5 percent in 2002, Monetary Affairs Commissioner Pedro Solbes said. He raised his forecast from an estimate of 1.3 percent in November.

"The growth profile remains one of a gradual recovery in the first half, confirmed in the second half of 2002," Solbes said after a meeting of the region's finance ministers. "We will see final growth of 1.5 percent on average."

The European Central Bank cut interest rates four times to 3.25 percent last year, and Germany, France and Italy let their budget deficits widen to cushion the slowdown. European business confidence was unchanged in February after rising for two months, suggesting a recovery has taken hold, a report showed yesterday.

"The response of the ECB and the governments to the crisis in 2001 was the right one," said Spanish Economy Minister Rodrigo Rato, the meeting's chairman. "They came up with the right policy mix. The basis for sustained growth for 2002 and 2003 does seem in place now."

Europe's economy will expand as much as 0.4 percent in the first three months of this year after shrinking as much as 0.2 percent in the final quarter of 2001, the commission forecast last month.

Europe's rebound is less robust than the recovery in the US, economists said. US manufacturing expanded in February for the first time in 19 months and the economy grew more than expected in the fourth quarter.

The ECB will probably leave its main interest rate unchanged at a meeting Thursday, economists surveyed by Bloomberg News predicted.

Upbeat in the EU

* The monetary affairs commissioner said the economy of the 12 nations sharing the euro will probably grow 1.5 percent this year.

* Europe's economy may expand as much as 0.4 percent in the first three months of this year.

The bank may raise interest rates as early as June, investors predict. The implied interest rate on three-month Euribor futures maturing in June is 3.48 percent, 23 basis points above the ECB's main rate.

European companies such as Deutsche Bank AG and Alcatel SA announced more than half a million job cuts in 2001. Germany's jobless rate has risen for 13 months, and French unemployment climbed to a 15-month high in January.

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