Frankfurt: The International Monetary Fund said on Monday that the expanding reach of the global credit crisis and persistent gloom over the US economy have dampened the outlook for European economic growth.
"Europe has so far been relatively resilient to the US slowdown and the global financial turbulence, but the historical record suggests these will increasingly take their toll," said Michael Deppler, director of the IMF's European Department.
The IMF forecast that the fallout from the credit crisis would combine with the near-record strength of the euro and soaring food and energy prices to knock real GDP growth across Europe from 3.9 per cent last year to 2.6 per cent this year, "with growth rates in the advanced economies projected to fall well below potential for some time."
The IMF broke down its forecast in two categories. The first was advanced European economies, including the 15-nation euro zone, Denmark, Sweden and Britain. The second was emerging European econ-omies, including Russia, Croatia, Albania, Turkey and Ukraine, among others.
Breakdown
The agency said that the advanced European econ-omies would see a decline in real growth from 2.8 per cent in 2007 to 1.5 per cent this year. The emerging economies' GDP would drop from 6.9 per cent to 5.5 per cent.
In the euro zone, GDP is expected to be at 1.4 per cent this year and 1.2 per cent in 2009.
"The sharp rise in inflation, which has already dampened consumer confidence and spending in Europe, is a further source of weakness," Deppler said.
The IMF outlook, in an annual report, comes with inflation in the 15-nation euro zone - which is home to more than 317 million people and accounts for more than 15 per cent of the world's global domestic product - running at 3.6 per cent, its highest level in 16 years.
