Growth of even 1% now unlikely

THE eurozone economy will find it difficult to expand by even 1% this year, European Monetary Affairs Commissioner Pedro Solbes said on Saturday, effectively scrapping a forecast made three months ago.

"One percent growth is unlikely," Mr Solbes told reporters in Gaeta, a town on Italy's west coast between Rome and Naples.

In April, the European Commission revised down its gross domestic product growth forecast to 1% from 1.8% but on Saturday, he hinted growth could dip to 0.7%.

"When we predicted one percent growth in April, we warned of risks to the downside and the upside. The downside risks have materialised," he said at a joint news conference with Italian Economy Minister Giulio Tremonti.

"It could be 0.7 percent, but it depends on how the third and fourth quarters go," Mr Solbes added.

Earlier, the commission said a strong euro, which recently hit record peaks against the dollar, would likely hurt exports in the coming months as they became less competitive on overseas markets.

The eurozone stagnated in the first three months of 2003, the quarter in which war began in Iraq.

It was the eurozone's worst quarterly economic performance since the last three months of 2001. Only growth in France and Spain offset contractions in Germany and Italy and prevented shrinkage in the bloc as a whole.

Italy, which has taken over the European Union's rotating presidency, is aiming to boost growth with a "New Deal," which would fund infrastructure projects via European Investment Bank (EIB) bonds.

The plan likened to the deal that relaunched the US economy after the Great Depression in the 1930s envisages raising as much as €70 billion a year via EIB bonds without governments taking the debt onto their books.

The cash would be pumped into economy-stimulating projects.