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IMF cuts euro zone economic growth forecast


IMF cuts euro zone economic growth forecast


The International Monetary Fund’s latest World Economic Outlook contains little good news for the euro zone. The IMF’s economists, in their twice-yearly report, said growth in the region in 2006 will be lower than previously expected and that the European Central Bank should be ready to cut interest rates if the economy falters again.

The euro zone growth projections have been cut from the levels calculated in April. Growth for 2005 is now expected to be 1.2% rather than the earlier projection of 1.6% and growth for 2006 is predicted to be 1.8%, that is 0.5% less than the previous forecast. The Japanese forecast has been boosted, while the US outlook was trimmed slightly. The IMF said “the tentative expansion in the euro area has faltered once again” due to weak domestic demand, a lack of structural reform and rising fiscal deficits. It believes the world economy is set to expand by 4.3% this year and next. That is above the 3.9% average of the past decade. However high oil prices mean that the global growth forecast for 2006 was slightly revised downwards from the April projection of 4.4%. The IMF says inflation around the world has picked up a little bit because of energy costs but remains moderate.
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