Italy, July 07: The euro zone economy will find it difficult to expand even 1% this year, European Monetary Affairs Commissioner, Pedro Solbes, said on Saturday, effectively scrapping a forecast made three months ago. “One percent growth is unlikely,” Mr Solbes said in Gaeta, a town on Italy’s west coast between Rome and Naples. In April, the European Commission revised down its gross domestic product growth forecast to 1% from 1.8%, but on Saturday, Mr Solbes hinted growth could dip to 0.7%. “When we predicted 1% growth in April, we warned of risks to the downside and the upside. The downside risks have materialised,” he said at a joint news conference with Italian economy minister, Giulio Tremonti. “It could be 0.7%, but it depends on how the third and fourth quarters go,” Mr Solbes added.

Earlier this week, the Commission said a strong euro, which recently hit record peaks against dollar, was likely to hurt exports in coming months as they became less competitive on overseas markets. The 12-member euro zone stagnated in the first 3 months of ‘03, the quarter in which the Iraq war began. It was the euro zone’s worst quarterly economic performance since the last three months of ‘01. Only growth in France and Spain offset contractions in Germany and Italy and prevented shrinkage in the bloc as a whole. Italy, which took over European Union’s rotating presidency this week, is aiming to boost growth with a “New Deal”, which would fund infrastructure projects via European Investment Bank (EIB) bonds.

The plan — likened to the deal that relaunched the US economy after the Great Depression in the 1930s — envisages raising as much as 70bn euros a year, via EIB bonds without governments taking the debt onto their books. The cash would be pumped into economy-stimulating projects like building transport links through the Alps and to Eastern European countries set to join the EU next year. Bureau Report