BRUSSELS, Belgium (AP) — The European Union cut its economic forecasts Friday, saying rising oil prices and turmoil in financial markets, stemming from the subprime mortgage debacle in the United States, will slash growth over the next two years.
The European Commission forecast that growth in the 27-nation bloc will slow to 2.4 percent in both 2008 and 2009, from 2.9 percent in 2007.
In the euro zone — the 13 nations using the euro as a common currency — growth will slow to 2.2 percent in 2008 and even further to 2.1 percent in 2009, from 2.6 percent this year, according to the forecast.
''Clouds have clearly gathered on the horizon with this summer's turbulence in the financial markets, the U.S. slowdown and the ever-rising oil prices,'' EU Economic and Monetary Affairs Commissioner Joaquin Almunia said as he unveiled his fall economic forecasts.
''As a result, economic growth is becoming more moderate and the downside risks have clearly increased,'' he added. Strong global growth of 5.6 percent and Europe's ''solid economic fundamentals'' were limiting the damage to the EU somewhat, Almunia said.
Almunia's forecast reflected the rise of oil prices up to Oct. 24 — when a barrel of cost US$85 — and ignores hikes since then that would likely have made for a grimmer forecast.
As Almunia spoke to reporters Friday, crude oil traded at more than US$96.
Echoing concerns of the European Central Bank, the European Commission said inflation was becoming a problem as a result of higher commodity prices.
It predicted an EU rate of 2.4 percent in 2008, up from 2.3 this year and said the eurozone's rate will rise to 2.1 percent in 2008, from 2 percent this year which is the maximum allowed under euro rules.
Almunia singled out euro member Slovenia — where inflation will be 3.5 percent this year and 3.7 percent next — for laxness. ''This is not due to the euro,'' said Almunia.
He said ''consolidation fatigue'' was keeping EU governments from using the good times to make savings and reduce deficits and debt.
Eurozone nations are shooting for balanced budgets by 2010 but the latest forecasts said nine eurozone nations will have a budget deficit in 2008, up from eight in 2007.
The European Commission said the slowdown in the U.S. economy appeared ''sharper than expected this spring, with the downturn in the housing market curbing GDP growth to around 2 percent, well below trend.''
However, it added, the overall outlook remains for a mid-cycle slowdown in the United States, not a recession.
The European Commission blamed ''the current distress'' on defaults in the US sub-prime mortgage market that has infected financial institutions worldwide with bad credit risks.
It said its ''forecast assumes that the turbulence will peter out gradually'' but will likely scare investors away for some time.
The EU head office said a doubling of commodity prices has left only a small mark. ''A certain impact on consumer price inflation has been noted, but due to ... moderate wage behavior overall, has so far not caused any sizable second-round effects,'' it said.
The EU's economic forecasts come at a time of sharp increases in oil prices that are the result of the unrelenting growth in China and other economic newcomers. Oil prices have reached record highs — trading around US$96 a barrel Friday — ''notwithstanding the fact that oil prices had already more than doubled in the preceding three years,'' said the European Commission.
It predicted a ''continued tight oil market with sustained strong demand.''
Since oil is traded in dollars, the strength of the euro — trading at more than US$1.47 — shields Europeans somewhat from the increase in the price of imports.
