The euro zone economy could contract in the first quarter of 2003, the European Commission said today, highlighting the fragility of the 12-member bloc's economic health.
A model used by the European Commission to forecast quarterly growth is predicting that the euro zone economy could at worst contract by as much as 0.2 per cent in the first three months of next year. At best, it will grow by 0.2 per cent.
The predictions back the need for the growth-supportive interest rate cut which the European Central Bank is expected to deliver tomorrow and took the shine off separate data showing growth picked up slightly in the third quarter of this year.
If the worst case scenario comes true, it would be the first contraction in euro zone gross domestic product since the fourth quarter of 2001. Even the most optimistic scenario expects things to get worse before they get better.
But the Commission insisted this did not jeopardise its official forecast that the euro zone economy would pick up in 2003 and said its model continued to predict growth of between 0.2 per cent and 0.5 per cent in the fourth quarter of 2002.
A country-by-country breakdown of available data showed Greece reported the strongest quarterly growth rate in the euro zone, at 1.1 per cent, with Spain next in line, at 0.8 per cent.
A breakdown by sector showed agriculture reported the strongest growth in the third quarter, expanding by 0.9 per cent, with construction contracting by 0.3 per cent on a quarterly basis.
Germany, Europe's largest economy, and Italy both expanded by 0.3 per cent on a quarterly basis, while France grew by 0.2 per cent.