EURO ZONE economies will "barely creep forward" in the second half of this year, the Organisation for Economic Co-operation and Development (OECD) warned, with the outlook for growth in France slashed nearly in half.
Updated projections by the Paris organisation suggested the 15-country euro zone would avoid a technical recession - two quarters of contraction - this year but would grow by just 1.3 per cent. It had expected 1.7 per cent growth.
The organisation did not release a forecast for Ireland, but said the UK was expected to fall into a technical recession in the second half of this year, with the growth rate falling to -0.3 per cent and -0.4 per cent in the third and fourth quarters of 2008 respectively.
The steep downward revision to UK growth outlook includes sharply falling house prices for the first time. "In all of these euro zone countries, including the UK, growth is largely flat . But the UK has a larger probability to be on the minus side," said an OECD spokesman.
For France, estimates of gross domestic product growth for the third quarter have been scaled down from 1.8 per cent to a year-on-year rate of just 1.0 per cent.
Presenting the latest forecasts, Jorgen Elmeskov, acting OECD chief economist, warned that worrying underlying inflation trends in the euro zone meant it could be harder to bring price pressures back under control than in the US.
Recent falls in oil prices would help reduce headline inflation but "this very persistent trend for underlying inflation to drift up is a cause for some worry".
Against that background, "the current level of [euro zone] interest rates seems to be about right", he said.
Despite the slowdown, the European Central Bank is expected to leave its main interest rate unchanged this week at 4.25 per cent and to signal that cuts in borrowing costs are unlikely soon.
Mr Elmeskov suggested that global financial turmoil might be entering a "new phase" with the stream of bad news reported by banks now reflecting general economic weakness rather than the direct effects of the credit squeeze. - (Financial Times service)
