Finance and Economic

Euro zone economic growth will halve in 2008 from 2007 and inflation will be much higher because of financial turmoil, soaring commodity prices and housing market shocks, the European Commission said on Wednesday.

Updating its economic forecasts, the European Union executive slashed its prediction for gross domestic product growth for the 15 nations using the euro to 1.3 percent from the 1.7 percent predicted in April, as the OECD did on September 2.

In 2007, euro zone gross domestic product (GDP) grew 2.6 percent.

The Commission cautioned that its new forecast for the euro zone could still prove too strong, and its figures showed the bloc’s biggest economy, Germany, in recession, with GDP shrinking 0.2 percent in the July-September period after contracting 0.5 percent in the previous three months.

Spain, whose housing bubble has burst, will also go into recession in the second half of the year, as will Britain, the Commission forecast.

Both France and Italy, whose economies shrank 0.3 percent in the second quarter, would only stagnate in the third.

“The main downside risks identified in the spring forecast have materialized, with the financial turmoil deepening, commodity prices soaring and the shocks to several housing markets spreading more widely,” the Commission said.

The Commission raised its inflation estimate for this year to 3.6 percent from 3.1 percent previously $500 payday loan. That is almost twice the European Central Bank’s target of keeping inflation below, but close to, 2 percent. 

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