By
The Associated Press
BRUSSELS, Belgium - Blaming a "spluttering" U.S. economy, the European Union slashed its own 2001 and 2002 growth forecasts to below 3 percent yesterday - a day before the European Central Bank meets to consider action on interest rates.
The forecast is sure to provide more ammunition for those arguing an interest rate cut is necessary to ward off a global slowdown. The ECB has come under mounting criticism over its position as the only major central bank not to cut rates this year, most recently from the head of the International Monetary Fund and even U.S. Treasury Secretary Paul O'Neill.
EU finance ministers meeting last weekend insisted the U.S. slowdown would have only a "minor" effect on European growth.
But the forecast from the EU Commission cited a "less soft than expected" landing of the U.S. economy as the chief factor in weakening European growth.
"The EU economy will not be able to escape some impact from the U.S.-led slowing of world demand," it said in a statement.
It forecast growth in the 12-nation euro-zone of 2.8 percent this year and 2.9 percent in 2002, down from its last forecast in November, which had gross domestic product rising by 3.2 percent in 2001 and 3 percent in 2002.
The forecasts are the same when Britain, Sweden and Denmark - the three EU countries not using the euro - are added.
More gloomy news came yesterday from the Confederation of British Industry, which reported a fall in output and business confidence as domestic orders for the past four months fell at their fastest rate since July 1999.
"Manufacturers are clearly facing difficult times," Nick Reilly, chairman of the CBI's economic affairs committee, said in pressing the Bank of England for a further quarter-point cut in interest rates.
In Brussels, EU Economic and Monetary Affairs Commissioner Pedro Solbes refused to say whether he thought the ECB should also cut rates.
Despite the sharp correction, the commission forecast is more optimistic than recent estimates by the Organization for Economic Cooperation and Development, the IMF - and the ECB itself.
The OECD recently lowered its growth forecast for the euro zone to 2.7 percent from 3.1 percent.
The IMF's latest projection cuts growth to 2.4 percent from 3.4 percent, while the ECB expects the euro zone to grow "at or above 2.5 percent" this year.
The commission also said it expected the pain to be felt mainly in the first half of the year. Four rate cuts by the U.S. Federal Reserve and President Bush's planned tax cuts should put the U.S. economy on the road to recovery in the second half of 2001, pulling the global economy along with it.
But the commission also warned the rebound could be slowed by the sharp slide in consumer confidence in the United States if that leads to a slowdown in domestic demand.
