The European Commission today cut sharply its 2008 growth estimate for the euro zone to 1.8% from 2.2%, blaming financial market turmoil, a weak US economy and record oil prices.
The European Union's executive arm also raised its forecast for euro zone inflation this year to 2.6% from 2.1% previously because of soaring food and energy prices.
'Europe clearly begins to feel the impact of the global headwinds in terms of lower growth and higher inflation,' EU Economic and Monetary Affairs Commissioner Joaquin Almunia said.
The commission also predicted that the 27-nation EU economy as a whole would grow 2% this year, trimming back an estimate of 2.4% from November, the last time it updated its economic forecasts.
The outlook for European economic heavyweight Germany was distinctly darker than in November, with the commission currently forecasting growth of only 1.6% compared with 2.1% previously.
Meanwhile, Italian growth was forecast to be half as strong as previously forecast at only 0.7%, down from 1.4%. The outlook was more encouraging in France where the economy was forecast to expand 2% this year compared with the commission's November estimate of 1.7%.
Meanwhile, the European Central Bank said that the euro zone payments current account had switched sharply into an estimated surplus of €15 billion in 2007, despite the rise of the euro.
In 2006, the current account - the widest measure of euro zone trade and financial transactions with countries outside the 15-nation area - had shown a deficit of €13.6 billion, the ECB said in a statement.
Provisional ECB figures are often subject to marked revisions however, and make comparisons difficult.
