Business leaders see 2009 EU growth slowing

BRUSSELS: European business leaders issued a bleak outlook Monday predicting economic growth in the European Union will slow to 0.4 per cent in 2009 - and to only half that in its 15 euro-zone nations.

BusinessEurope, which represents 20 million small, medium and large companies across Europe, urged the European Central Bank to be ready to make ``further interest rate cuts'' to ease the pain of an accelerating economic slowdown marked by hefty drops in investment spending and employment.

For their part, governments must curb deficits, stick to rules guaranteeing the euro's stability and be ready to further stabilize financial markets with cash and credit guarantees, said a report issued by the lobby group.

It said they must ``prove their firm attachment to a coordinated'' approach to stabilize the international financial system and ``ensure a continued flow of credit to the economy.''

The BusinessEurope report predicted the economy of the 27-nation EU will expand by 1.4 per cent in 2008, matching the latest forecast, issued Sept 10, by the European Commission.

But BusinessEurope sees 2008 euro-zone growth dropping to 1.2 percent - against 1.3 per cent forecast by both the European Commission and the International Monetary Fund.

Its outlook also sees fixed investment spending contracting in 2009 by 1.7 per cent. ``Under present circumstances, improvements on European labor markets will also grind to a halt and are expected to shift into reverse gear next year,'' said the report.

The survey predicted also a sharp drop in employment in 2009: down 1.1 million jobs compared to ``net job creation of more than 2 million'' in 2008.

BusinessEurope sees the EU ending 2008 with a 7.5 per cent jobless rate that will rise to 8.2 percent in 2009. In the euro-zone unemployment will rise to 7.8 per cent, from 7 per cent this year, it said.

BusinessEurope pressed governments to ``ensure a continued flow of credit'' and the ECB to be ready ``to make interest rate cuts ... to attenuate the economic impact of the crisis while maintaining price stability.''

The business group said governments must neither tinker with the ``letter and spirit'' of the euro rules that set deficit, debt and inflation ceilings not overreact to the financial turmoil.

``Even though a fully fledged credit crunch has not yet appeared in Europe,'' it said, companies worry ``about the political consequences of this crisis ... in particular the risk of a regulatory overreaction and a return of protectionist reflexes.''

The survey said while almost 60 percent of EU business find the ECB's monetary policies to be ``appropriate,'' 73 per cent find EU governments' progress in budgetary reforms to be ``less than satisfactory.''