The Euro zone economic recovery has been disappointing, remains vulnerable to setbacks - especially in Germany -and needs help from lower interest rates, the International Monetary Fund said today.
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The fund's semi-annual check-up on the health of world economy diagnosed tepid consumption and investment in the 12-country region and accordingly slashed growth forecasts for this year and next.
These see GDP growth of just 0.9 per cent in 2002, from an April estimate of 1.4 per cent. Next year, the bloc's economy should advance 2.3 per cent, versus 2.9 per cent seen six months ago. But it's going to need a little luck.
"Questions remain about the resilience and dynamism of the expected recovery, however," the IMF noted in its latest World Economic Outlook.
The region is dangerously dependent on exports and the euro, which has already risen quite sharply against the US dollar, could continue to appreciate and curb foreign sales.
Plus, equity markets have fallen further than even in the United States. Stock holdings may be less important for the real economy than they are in the United States, but the downdraft could still sap confidence.
Then there is the awkward truth about industrial powerhouse Germany, the region's largest economy, which is barely growing at all. It remains in a delicate position and could hurt its neighbors if it fails to kick into higher gear.
"Prospects for industrial production and domestic demand in Germany appear particularly uncertain, and further weakness there would have important implications for Europe as a whole," the fund warned.