BRUSSELS (AFP) — European economic growth will be weaker than previously expected next year, the European Commission warned Friday, blaming distressed financial markets, a relentless rise in oil prices and a weakening US economy.
In an autumn update of its economic forecasts, the European Union's executive arm cut its 2008 growth estimate for the 13 nations sharing the euro to 2.2 percent from the 2.5 percent projected in May.
But the European Commission lifted slightly its 2007 estimate to 2.6 percent from 2.5 percent previously despite the growing risks facing economic growth in Europe.
In the broader 27-nation EU, economic growth was forecast to slow from 2.9 percent this year to 2.4 percent in 2008.
"Clouds have clearly gathered on the horizon with this summer's turbulence in the financial market, the US slowdown and the ever-rising oil prices," said EU Economic and Monetary Affairs Commissioner Joaquin Almunia.
"As a result, economic growth is becoming more moderate and the downside risks have recently increased," he added.
A steep and rapid housing downturn in the United States rattled nerves on financial markets in recent months, raising doubts about the health of the world's largest economy.
However, the slowdown in Europe's biggest trade partner would be in part offset by still solid growth in major emerging economies such as China, the Commissionn said.
As European businesses struggle to cope with tight credit conditions and high oil prices, private consumption has become the major engine driving growth, with falling unemployment boosting consumer confidence.
Although job growth is set to slow in the coming years, unemployment should nevertheless keep falling, reaching a 15-year low in 2009 with joblessness in the eurozone at 7.1 percent and 6.6 percent in the EU as a whole.
But after years of chronically high unemployment, European businesses would increasingly struggle to cope with labour shortages, encouraging workers to demand higher wages, which ultimately puts pressure on inflation, according to the Commission.
After 12-month inflation hit a two-year record in October of 2.6 percent, the Commission forecast that price growth would keep racing ahead in the coming quarters on the back of soaring commodity prices before easing next summer.
It forecast that for all of 2007 inflation would come in at 2.0 percent and would pick up to 2.1 percent next year, slightly above the European Central Bank's preferred limit of less than but close to 2.0 percent.
The ECB left its main lending rate steady on Thursday at 4.0 percent as it struggles with the dilemma of keeping a lid on inflation while trying to prevent economic growth from softening much more.
With crude oil flirting with a record 100-dollars a barrel, central bankers worldwide are growing worried about surging energy and other commodity prices fuelling inflation pressures.
However, the euro's record strength, which brought the single European currency to an all-time high of 1.4752 dollars on Friday, eases the impact of soaring oil prices, which are denominated in dollars on global markets.
While the euro's ascent makes imports cheaper for European consumers, exporters in Europe are increasingly getting pinched because it makes their products less competitive abroad.
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