Bloomberg.com: Europe on the right economic track says IMF

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Europe on the right economic track says IMF

The International Monetary Fund raised its forecast for economic growth in the euro region and dropped its view that the European Central Bank has room to cut interest rates this year. Economic expansion in the economy of the 15 nations that use the euro will slow to about 1.75 percent this year, the IMF said in a statement today, compared with 1.4 percent forecast earlier. The economy will expand 1.25 percent next year and inflation will fall below the ECB's 2 percent limit by the end of 2009, the IMF added.

European policy makers face accelerating inflation stemming from record food and oil prices even as economic growth slows. Consumer prices rose 3.6 percent on the year in May, matching the fastest pace in 16 years.

The ECB is set to present revised forecasts for economic growth and inflation following its rate-setting meeting June 5. The central bank will likely cut its growth forecast, said Laurent Bilke, an economist at Lehman Brothers Holdings Inc. in London. The IMF said the European economy is still to feel the main impact from the global credit shortage. European lenders have posted $199.6 billion of writedowns and losses related to the collapse of the U.S. subprime mortgage market.