The International Monetary Fund (IMF) on Wednesday cut its economic growth forecasts for the 12-nation euro-zone, calling for "a more decisive and consistent pursuit of forward-looking policies aimed at strengthening fiscal adjustment and structural reform."

In its annual review of the euro-zone, the IMF said the single currency area's economy will grow 1.3 percent in 2005 and 1.9 percent in 2006, lower than the growth rates of 1.6 percent and 2.3 percent projected by the fund in April.

Meanwhile, the fund projected that the euro-zone's inflation will decelerate to 1.75 percent in 2006 from 2.2 percent in July this year.

Given that outlook, an interest rate cut by the European Central Bank might be appropriate in the coming months if it is evident that the recovery is faltering, it said.

"The fundamentals remain in place for the modest recovery to resume in the second half of 2005, but with downside risks continuing to prevail," the IMF noted, saying the euro-zone's economy should pick up in the second half of 2005.

It expects the euro-zone's economic growth rate to pick up to 1.5 percent at an annual rate in the third quarter of 2005 and 2 percent in the fourth quarter from one percent in the second quarter.

The IMF urged euro-zone governments to cut their budget deficit, preparing for the increased costs of paying pensions and meeting health care needs for an aging population.

It also warned that the euro-zone's economic recovery remains vulnerable to soaring oil prices or the euro's further appreciation.

Source: Xinhua