The outlook for economic growth in the euro zone has got gloomier over the past quarter and interest rates in the single currency bloc are likely to start creeping up late this year, the Paris-based Organisation for Economic Co-operation and Development (OECD) said yesterday.

The organisation said it expected the European Central Bank (ECB) to raise interest rates by 25 basis points late this year, with further increases by an accumulated 100 basis points in 2003.

The economic outlook for the euro zone was not as bright as in April, when the organisation forecast growth of 1.3 per cent for this year and 2.9 per cent in 2003, it said.

"Recent developments point to a somewhat gloomier, but not radically different, picture for growth, while inflation could be lower," the OECD wrote in an economic survey of the euro zone.

"The euro has appreciated in effective terms by 7 per cent since April. This will dampen export growth and inflation, with the latter gradually strengthening domestic demand in the euro area."

Should the euro stay at its current level or appreciate further, inflation in the single currency bloc should soon fall to below the 2 per cent upper band of the ECB's price stability range, according to the organisation.

- (Reuters)