IMF cuts eurozone growth forecast

The International Monetary Fund slashed its growth estimates for the euro bloc today.

It warned that continued weakness in the continent’s biggest economy, Germany, threatened even that ”tepid” recovery in the euro nations.

Calling the slowdown in the 12 countries using the euro ”deeper and more prolonged” than expected, the IMF said recent signs of improvement – such as rising stock markets and business confidence – had yet to have a broader impact.

For the eurozone, the IMF forecast growth of only 0.5% this year and 1.9% next year. Its April report had projected growth rates of 1.1% and 2.3% respectively.

“For the moment, Europeans who want to see an economic recovery will have to watch it on TV,” said the IMF’s chief economist, Kenneth Rogoff. But he predicted “things are going to gradually get better.”

The IMF noted that Germany, Italy and the Netherlands were in recession, with France not much better off.

“The German economy remains weak for the third year in a row, adding to the subpar performance of the euro area as a whole and threatening to hold back the region’s recovery prospects,” the report said.

Rogoff said in Dubai there were grounds for ”tepid optimism,” such as projections of higher exports to the rest of the world, and “promising initiatives” in Germany to reform its rigid labour market and in France to start dealing with its “politically sensitive pension time bomb.”

The US economy, which is “charging ahead” with growth of 2.6% and 3.9% in 2004, is also expected to help pull Europe along, he said.