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EU cuts growth forecastsReport from the European Union says things may get worse before they get better.
BRUSSELS, Belgium (Reuters) -- The European Union's executive body Tuesday cut its forecast for global economic growth this year to 3.2 percent and said there was an outside chance things could get far worse if war dragged on and oil prices stayed high. "Things will get worse before they get better,'' the European Commission, the Brussels-based executive body of the 15-nation European Union, said in a twice-yearly report. The Commission, whose forecasts were issued on the eve of a new series of projections by the International Monetary Fund in Washington, said it had cut its forecast for growth in 2003 to 3.2 from 3.6 percent, after an estimated 2.9 percent in 2002. It said that the forecasts were based on the Iraq war ending by mid-year and predicted growth of 3.7 percent in 2004, down from its previous forecast of 4 percent. The main underlying forecasts were growth of 2.4 percent this year in the United States and 2.5 percent in 2004. Euro zone growth was predicted at 1 percent in 2003 and 2.3 in 2004, with Japan at 1.5 and 1.3 percent, respectively. For now there were a lot of uncertainties, the report said. "Geopolitical tensions are not confined to the standoff between the U.S. and Iraq. The Iraq issue has put strains on the trans-Atlantic relationship and prospects for the post-war situation in Iraq remain uncertain,'' the report said. "The tensions put additional downward pressure on equity markets, that have continued to decline so far in 2003.'' The Commission, echoing comments from governments and experts around the world in recent weeks, said the world's current economic ills had started before the outbreak of war in Iraq last month and even before fears of war emerged last autumn. The Commission said it believed it would be "appropriate'' to draw up a worst-case scenario where growth worldwide would be limited to 2.2 percent. The general rule of thumb for a single national economy is that two consecutive three-month periods of shrinkage amounts to recession. But at the world level, where developing economies tend to have far higher growth rates than advanced economies, many economists say low growth rates of below 2 percent or so are tantamount to recession. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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