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IMF raises eurozone growth forecast for 2008

The International Monetary Fund Monday upgraded its forecast for eurozone growth this year despite grave concerns over soaring oil prices and the current global financial turbulence.

The International Monetary Fund said in its report released Monday in Frankfurt that the 15-nation eurozone economy would grow by around 1.75% in 2008. The institution had previously cut its forecast for 2008 to 1.4% in April. The eurozone has demonstrated itself “a zone of stability in the international economy” despite major challenges, said the report. “Despite labor market inefficiencies and major terms-of-trade shocks, labor costs have been subdued and employment growth remarkably strong,” it said.

Acting IMF director for Europe, Alessandro Leipold, told reporters in Frankfurt that “activity so far has clearly been more robust than we anticipated” in the Q1 of 2008. Still, Leipold warned that the eurozone economy is not “immune” to the outside world. Soaring oil and food prices are among the major factors that could weigh on the European economies, the IMF said. Experts are also worried that a strong euro could hurt the growth of some export-driven economies, such as Germany. And the ongoing financial crunch, which could lead to corporate credit crisis and a substantial reduction of investment, could cut global demand and exports and further drag down economic growth, the IMF said.

Meanwhile, the IMF suggested that the Frankfurt-based European Central Bank (ECB) keep its interest rates stable at 4.0% despite inflation fears. Even though inflation in the eurozone is likely to stay above 3% for some time, well above the ECB’s goal of below 2%, it would “gradually return to below 2.0% in late 2009,” the IMF said. The institution raised its eurozone growth forecast for 2009 from 1.2% to 1.25%. The ECB, established ten years ago with its main goal to curb inflation in the eurozone, has kept its benchmark interest rate unchanged since last June despite substantial cuts by the US Federal Reserve to boost economic growth. (