Economic growth across the EU will slow in 2008 because of a weaker US economy and problems in global financial markets, the European Commission says.
Brussels is now forecasting 2.4% growth in the 27-member union in both 2008 and 2009, compared to 2.7% this year.
In the 13-member eurozone, growth is expected to slow to 2.2% next year, down from the 2.6% projected for 2007.
European banks have not been immune to the global credit crisis triggered by the slump in the US housing market.
Several German and French lenders have already experienced problems due to bad mortgage-backed investments, although not nearly on the same scale as in the US.
UK lender Northern Rock has been forced to borrow more than ?20bn in emergency loans from the Bank of England, after the global credit squeeze meant it was unable to obtain funding from the financial markets.
The UK is one of several EU countries to have downgraded its growth forecasts because of the worsening economic situation in the US.
In its twice-yearly economic forecast, Brussels said it now expected inflation in the eurozone to remain at about 2% this year, rising slightly to 2.1% next year.
It is forecasting the average oil price will rise from $70.60 a barrel this year to $78.80 in 2008.
"Clouds have clearly gathered on the horizon with this summer's turbulence in the financial markets, the US slowdown and the ever-rising oil prices," said economic and monetary affairs commissioner Joaquin Almunia, unveiling the latest growth forecasts.
"As a result, economic growth is becoming more moderate and the downside risks have clearly increased." ( BBC )