Eurozone Growth Set To Outstrip U.S. For First Time Since 2001

April 11, 2007
The IMF projects U.S. growth at 2.2% and the eurozone at 2.3%

Eurozone economic momentum is set to eclipse growth in the U.S. for the first time since 2001, and possibly justify a rise in interest rates by September, the IMF said April 11. The last time the eurozone outstripped the United States was in 2001, when respective growth rates came to 1.9% and 0.8%.

The Fund said eurozone output should expand 2.3% this year, just slightly better than the U.S., where growth is projected to be 2.2%. In September the IMF foresaw 2007 eurozone growth of 2%.

In its twice-yearly assessment of the global economy, the IMF also warned that growth in the 13-nation zone would slow next year and called for tighter budgets that would nonetheless allow for greater spending on information technology.

Powered by Germany, the largest economy in the bloc, the eurozone expanded 2.6% in 2006, double the pace in 2005 and its best showing since 2000.

The report also noted that the current expansion in the eurozone has encouraged some members to tighten spending and to take steps to reduce public deficits. "Almost all countries in the euro area have lowered deficits to below 3% of gross domestic product," the IMF said, referring to the limit set by the EU's Stability and Growth Pact. But progress so far has been mostly attributable to efforts by Germany and Italy, "rooted for the most part in buoyant revenue growth rather than tighter expenditure control."

The IMF noted that while labor productivity has improved and unemployment rates have declined, the fundamental gap with the U.S remains substantial and could be exacerbated in coming years in the face of an aging population. The jobless rate in the euro area is forecast to fall from 7.7% in 2006 to 7.3% in 2007 and 7.1% next year. The U.S. unemployment rate by comparison should be limited to 4.8% this year and 5% in 2008.

Additionally, the eurozone, the IMF said, has been severely hampered by a comparative slowness in adopting new technologies, particularly in information processing and communications. It cited studies showing that the eurozone has smaller information and communications technology sectors than the U.S and has invested less in appropriate research and development.

Copyright Agence France-Presse, 2007

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