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Euro region won't meet my 2% growth forecast: Solbes

EU Monetary Affairs Commissioner Pedro Solbes said the dozen countries that use the euro won't meet his forecast of 2 percent economic growth next year as Europe lags a global recovery.

"We have to be pessimistic as concerns our figure for 2004," Solbes said in an interview during the annual meetings of the IMF and the World Bank in Dubai.

"I'm sure our figure for 2004 will be below" the commission's forecast of 2 percent, he said.

The region's US$8 trillion economy shrank in the second quarter for only the second time since the euro's birth in 1999, after the currency's ascent to a record against the dollar stifled exports.

The euro has pared gains since late May and business confidence has been rising in Germany, France and Italy, suggesting executives expect to profit from a global

recovery.

European Central Bank (ECB) council member Jaime Caruana said on Sunday growth should be "closer to potential growth" by the end of next year, though "certainly not on average."

The ECB estimates potential growth -- the rate at which the economy can expand without fueling inflation -- at between 2 percent and 2.5 percent.

The European Commission earlier this month cut its 2003 growth forecast in half to 0.5 percent.

That would be the slowest rate of expansion for the region's economy in 10 years.

To boost growth, Germany and France have pledged tax cuts worth a combined 24 billion euros (US$27.3 billion) next year, measures that risk pushing their budget deficits above a EU limit for a third year next year.

German Finance Minister Hans Eichel has said keeping the deficit to 3 percent of GDP next year, as required by EU rules, will be "extremely difficult." France's finance minister said earlier this month pledged to abide by the region's budget rules only in 2005.

Widening budget gaps have added to expectations that the ECB won't cut interest rates further, after paring them to the lowest since 1946 earlier this year.

The ECB has lowered interest rates seven times since the beginning of 2001, to 2 percent from 4.75 percent, as slowing growth and the euro's gains helped slow inflation.
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