The European Commission is set to cut its forecast of 2003 euro zone economic growth to 0.5 per cent from a previous estimate of 0.7 per cent, according to a draft Commission document to be discussed today.

"The average \ growth rate for 2003 could stand at around 0.5 per cent," an EU source quoted the paper as saying.

A spokesman for the Commission declined to comment on the paper, which sums up the Commission's economic outlook before an EU finance ministers' meeting in Italy this week.

The euro zone economy is struggling.

Data released earlier yesterday showed that gross domestic product fell 0.1 per cent in the second quarter of 2003 from the previous quarter, with growth in the first quarter restated at 0 per cent.

According to a Commission forecast model, growth in the 12-nation bloc was expected to be between zero and 0.4 per cent in the third quarter of this year and between 0.2 and 0.6 per cent in the fourth quarter.

The paper, still in draft form, is expected to be endorsed by the 20-member Commission at its weekly meeting today.

The document took note of the worsening budgetary situation in some large EU member-states but did not mention the Stability and Growth Pact.

EU ministers are expected to discuss ballooning budget deficits in large countries - such as France and Germany - at their meeting this weekend even though the issue is not officially on the agenda, EU diplomats said.

- (Reuters)