The IMF has cut its growth forecast for the euro area economy to 1.6% in 2001 and 1.5% in 2002, down from 1.8% and 2.2%, respectively.
An IMF executive board report said that 'under a cumulation of adverse supply and demand shocks, the euro area's three-year old economic upswing came to a virtual standstill in the second quarter of 2001.'
It said the European economies will feel the effects of the global downturn both this year and next year.
The International Monetary Fund said that 'in the face of large and global disturbances and the marked slowdown in world trade growth, the euro area's expansion has proven less resilient than anticipated.'
Michael Deppler, the IMF director for Europe, said the growth figures may be revised downward again as further data become available. 'Cyclical indicators reflecting developments in the third quarter of 2001, including after the events of September 11, suggest that area-wide growth is likely to have weakened further,' the IMF report said.
'Directors considered the area's macroeconomic fundamentals to be sound, with low underlying inflation and much strengthened fiscal positions providing a base for a new cyclical upswing on the back of supportive policies.'
The report said inflation is expected to be around 2.75% for 2001 and easing to 1.5% next year. IMF executive directors also said there is room for further monetary easing by the European Central Bank, particularly if the euro appreciates. Directors said risks to price stability in the euro area are receding, and are expected to diminish further.
