However, it said the underlying economic factors are strong, the slowdown will be short and the European Union (EU) economy will continue to create jobs in the next two years.

Yves Thibault de Silguy, acting commissioner for EC's economic, financial and monetary affairs, said the projected fall is due to the impact of recession in Asia, Russia and Latin America. The EC is executive body of the 15-member European Union.

After a growth of three per cent last year, Silguy said, the EC has forecast that economies of 11 countries belonging to the single currency zone will grow by 2.2 per cent in 1999 and 2.9 per cent in 2000. Growth figures for the entire EU are 2.1 per cent in 1999 and 2.7 per cent in 2000.

Silguy said strong economic fundamentals like no inflationary pressure, record low interest rates, strongconsumer confidence and signs of stabilisation in global economic environment suggest that the slowdown will be short and the European Union economy will pick up in second half of this year.

He remained unruffled by the current weakness of Euro and said it reflected unexpectedly strong growth in the United States during fourth quarter of 1998 rather than problems within Europe.

The European Commission commissioner said greater efforts must be made to reduce budgetary deficits within the Euro zone.

Experts here maintain that the slowdown, particularly in Germany where the economy is expected to grow only 1.7 per cent this year, will increase pressure on the European Central Bank to reduce interest rates further.

This is despite the consumer price inflation in the EU is expected to fall this year to 1.3 per cent, the lowest since second world war. The European Commission expects a slight increase in inflation to 1.6 per cent as the overall growth picks up.

Silguy said the European Union is expected tocreate more than 40 lakh jobs in the next two years which will wipe out losses in the early 1990s. There are no signs of job-cuttings this year as the economic slump is likely to be temporary.

In 2000, the number of unemployed is likely to fall to 1.45 crore in the EU, or 9.2 per cent of the total workforce, as compared to 11.2 per cent in 1994.

At the same time, the EC called upon Italy, France, Germany and the Netherlands to pay attention to meeting their annual budgetary targets. Belgium, Italy and Greece were urged to maintain high primary surpluses supported by privatisation policies because of their high levels of public debt as a share of gross domestic product (GDP).

Secondly, the EC asked for economic reforms to improve the operation of goods, services and capital markets. Austria, Denmark, Germany and Greece were also told to make further progress with tax reforms.

Thirdly, it urged the member nations to undertake active polices for modernising labour markets.

The EC said these threefundamentals principles were at the heart of work in developing a European Employment Pact which is due to be agreed at the Cologne summit next month.