EU cuts 2007 eurozone growth rate

Business Materials 12 September 2007 05:44 (UTC +04:00)

Eurozone economic growth in 2007 will be less than first estimated, in part due to the recent markets turmoil, the European Commission has said.

Brussels now predicts that the combined economies of the 13 countries using the euro will grow by 2.5% this year. ( BBC )

This is slightly below its May forecast of a 2.6% increase, and less than the 2.7% growth rate recorded for 2006.

The Commission said the recent turmoil in financial markets had increased uncertainty and cut available credit.

It added that the expected slowdown in economic growth could worsen into 2008.

US impact

Recent turmoil in the global markets has centred on record loan defaults in the US sub-prime mortgage sector, which lends money to people with poor or non-existent credit histories.

The crisis has since spread across the Atlantic because US sub-prime debt is often resold around the world as part of a wider debt package.

As a result, European banks have become far more cautious about whom they lend to, and are stockpiling funds to cover any potential liabilities of their own.

The result has been a sharp downturn in available credit, and higher lending rates, both for companies wishing to borrow, and individuals trying to get a mortgage.

Many analysts have warned that companies profits and consumer spending levels may decline because it is now harder for them to access money to spend.