The IMF has sharply lowered its 2005 growth forecast for the euro zone, warning that a pick-up in momentum would be slower than expected in the face of high oil prices and global economic uncertainty.
In its twice-yearly World Economic Outlook report, the International Monetary Fund cut its growth projection for the euro area to 1.6% this year from a forecast of 2.2% last September.
That meant the euro zone would lag well behind the US, where the IMF sees output expanding 3.6% this year.
The forecast for Germany was cut by a percentage point to 0.8%, while that for France was reduced from 2.3% to 2%. But the fund raised its forecast for British growth to 2.6%.
For Ireland, the report forecast GDP growth of 4.8% this year and 4.6% in 2006. It said inflation would fall to 2.1% this year, with the unemployment rate dropping from 4.5% to 4.1%.
The IMF said euro zone growth would gradually pick up, helped by stronger exports and consumer spending, but warned that the euro economy was over reliant on external developments, particularly in powerhouse Germany, where foreign demand accounted for three quarters of 2004 growth.
The IMF was more upbeat about inflation prospects in the euro zone, describing price pressures as 'well contained'.
On the US, the IMF flagged the current account deficit as one major area of concern, saying this could be explained in part by the stronger growth of the US economy relative to Europe and Japan. That has resulted in strong import demand in the US but a weak appetite for US goods overseas.
So far, the deficit has remained well financed with foreign investors - particularly in Asia - retaining their desire for dollar assets. But were this to change, the IMF warned, the impact would be harsh not just in the US but further afield.
Selling pressure on the dollar is unwelcome if it results in 'further, and possibly disorderly, depreciation' of the world's reserve currency, the report said.
