No spring for eurozone growth

The International Monetary Fund has cut a 2004 growth forecast for the eurozone and invited the European Central Bank to cut interest rates to boost recovery.

In its latest world economic outlook the IMF downgraded its 2004 growth forecast for the eurozone from 1.8 per cent in September to 1.7 per cent.

"The euro area..is still experiencing wintry conditions, with prospects much less favourable than in the other two main regions," said IMF research director Raghuram Rajan on Wednesday.

Rajan said the sluggish recovery is only "temporary" but indicated an interest rate cut could help things along.

"Whatever the latest indicators are they do not look particularly good", he said.

"If this continues there might be room for a further rate cut by the ECB."

But Rajan warned this would not be a "magic" solution and that structural reforms are one of the main problems undermining Europe at the moment.

He said Germany particularly has "some distance left to go" with its reform plans although the fund's growth forecast of 1.6 for Europe's largest economy remains unchanged.

But the IMF did cut its outlook for France and Italy.

France will only now see 1.8 per cent growth in 2004 rather than the two per cent the fund predicted in September.

And Italy's growth rate has been slashed from 1.6 per cent to only 1.2 per cent for this year.

Deputy director of research at the IMF David Robinson said the government has relied too much on one-off measures last year that would not offset deficit in the future.

"We saw a tax amnesty which I think contributed something like one per cent to revenues", he told a press conference.

"Obviously that is going to continue in 2004...but in 2005 the revenues from that tax amnesty will truly be gone and substantial further adjustment will be needed to offset that effect."

On the world economy however the IMF was more upbeat, increasing its global growth forecast up to 4.6 per cent for 2004 and 4.4 per cent for 2005.

The US has "led the way", Rajan said, and Japan's recovery is showing "remarkable strength".

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