August 3, 2005

IMF sees Eurozone growth shrink further

by brian_turner

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The International Monetary Fund (IMF) has reduced its forecasts for growth in the eurozone from 1.6% to 1.3% for 2005, and from 2.3% to 1.9% in 2006.

However, the IMF supported the European Central Bank (ECB) in its decision to keep interest rates at 2% rather than reduce them to boost slowing economies.

Germany, Italy and Austria want the ECB to reduce rates because they have a near zero-growth rate. The IMF said a rate cut may be necessary in future if evidence of a fading recovery mounts.

The IMF report was issued the day before a meeting of the ECB, which is expected to leave interest rates at 2%.

Consumer and business confidence in the eurozone remains low due to concerns about inflation, with oil prices high and depressed labour markets.

The Organisation for Economic Cooperation and Development has warned that reform is needed to prevent weak growth over the next 15 years. It advised the ECB to introduce major competitive reforms, including making labour markets more flexible and integration to increase growth to over 2%.

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