–Adds Trichet comments on growth; forecast assumptions on oil, euro fx
PARIS (MNI) – Eurosystem staff have raised their midpoint forecasts
for 2010 Eurozone GDP growth and for HICP while lowering them for 2011,
ECB President Jean-Claude Trichet announced Thursday.
The ECB had been widely expected to raise its growth and inflation
forecasts this year, based on signs of a stronger than expected second
quarter performance with respect to growth and, on the inflation front,
due to higher commodity prices and a weaker euro.
The new forecasts put 2010 GDP in a range of +0.7% to +1.3% with a
midpoint of 1.0%, up from 0.8% in the March forecast. For 2011, the
staff now projects growth in an extremely wide range of +0.2% to +2.2%,
yielding a midpoint of +1.2%. In March, the ECB staff had forecast a
2011 growth midpoint of +1.5%.
The 2010 growth forecast were upwardly revised “owing to the
positive impact of stronger activity worldwide in the short run, while
the range has been revised somewhat downwards for 2011, reflecting
mainly domestic demand prospects,” Trichet said.
In particular, Trichet specified that “after having had a first
quarter which was not buoyant, we will have much more buoyant second
quarter and that of course explains that for the full body of this year
you might have this upward revision, which is not totally negligible
since it is 0.2″ [percentage point].
But the economic situation is characterized by “tension” and
“unusually high uncertainty,” Trichet warned.
“We do not see similar [positive] changes for next year,” he said.
“We see a level of uncertainty at the level of our economy and the
industrialised world…Growth depends on us and crucially depends on
confidence and we try to continue to be an anchor of confidence
More generally, “the Governing Council expects real GDP to grow at
a moderate and still uneven pace over time and across economies and
sectors of the euro area,” Trichet added.
On the positive side, the ECB president said, “the ongoing recovery
at the global level and its impact on the demand for euro area exports,
together with the accommodative monetary policy stance and the measures
adopted to restore the functioning of the financial system, should
provide support to the euro area economy.”
Weighing against growth, however, “the recovery of activity is
expected to be dampened by the process of balance sheet adjustment in
various sectors and weak labour market prospects.”
On the price front, the new forecasts continue to show inflation
well below the ECB’s price stability threshold of close to but below 2%.
HICP is now expected at +1.5% this year, up from the 1.2% projected
midpoint in March. The ECB staff put HICP in 2011 at a midpoint of
1.1%, down from 1.5% in the March forecast.
Trichet said the upward revision in the 2010 HICP forecast was
“mainly reflecting higher euro prices for commodities.” He noted that
the new forecast — as for that of growth — “provide a broadly similar
picture” to that of other international organizations.
Trichet characterized inflation risks as “broadly balanced.”
Upside risks over the medium term were related particularly to
commodities prices. There might also be increases in administered prices
and indirect taxes, because of the need for Eurozone governments to cut
their budget deficits over the next few years.
He also said price pressures could continue to emanate from the
global economy. Nonetheless, Trichet said, “risks to domestic price and
cost developments are contained.”
In its most recent forecasts, published in early May, the European
Commission raised its 2010 GDP forecast for the Eurozone 0.2 point to
+0.9% y/y and its HICP forecast by 0.4 point to +1.5%. For 2011, the
Commission is forecasting growth of 1.5% in the euro area, unchanged
from its previous forecast, and inflation of 1.7%, an upward revision of
The OECD is projecting growth of +1.2% and +1.8% in 2010 and 2011,
respectively. On the inflation front, the OECD Sees Eurozone HICP at
1.4% this year, then slowing to 1.0% in 2011.
In its forecasts, the ECB staff assumed an average euro-dollar
exchange rate of $1.30 in 2010 and $1.26 in 2011. It assumed oil prices
at $79.50 per barrel this year and $83.70 next year. It said the euro’s
average effective exchange rate was assumed to depreciate by 6.4% this
year and 1.8% next year.
The ECB, using market expectations, pegged the average short-term
interest rate at 0.8% this year and 1.1% in 2011. It said average
10-year rates were seen at 3.9% in 2010 and 4.2% in 2011.
The following table contains the ECB’s new forecasts, compared with
the ones they issued in March.
New (%) Projections (%) Dec (%) Projections (%)
Range Midpoint Range Midpoint
2010 GDP +0.7% to +1.3% +1.0% +0.4% to +1.2% +0.8%
2011 GDP +0.2% to 2.2% +1.2% +0.5% to 2.5% +1.5%
2010 HICP +1.4% to +1.6% +1.5% +0.8% to +1.6% +1.2%
2011 HICP +1.0% to +1.2% +1.1% +0.9% to +2.1% +1.5%
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