ECB Staff Cuts Growth,Narrows Inflation Forecasts For 2011-12

Author: Market News International | Category: News

PARIS (MNI) – The European Central Bank staff has cut its forecasts
for economic growth in the Eurozone while narrowing its forecast range
for inflation, ECB President Jean-Claude Trichet announced Thursday.

The revisions suggest that any further interest rate increases are
on hold for the foreseeable future.

ECB President Jean-Claude Trichet told journalists at his monthly
press conference that the central bank staff now expects the Eurozone
economy to grow by between 1.4% and 1.8% this year, and between 0.4% and
2.2% in 2012. That is down from the previous forecasts of 1.5% to 2.3%
for 2011 and 0.6% to 2.8% for 2012 issued in June.

The ECB kept its inflation forecast at 2.5% to 2.7% in 2011, while
narrowing the forecast range to 1.2% to 2.2% for 2012. The 2012 forecast
compares with a previous forecast of 1.1% to 2.3% in 2012.

“The risks to the economic outlook for the euro area are on the
downside, in an environment of particularly high uncertainty,” Trichet
said. “Downside risks mainly relate to the ongoing tensions in some
segments of the financial markets in the euro area and at the global
level, as well as to the potential for these pressures to spill over
into the euro area real economy.”

Later, during the question and answer period, Trichet noted that
the ECB’s outlook on growth had undergone a “significant” change since
last month’s rate setting meeting.

The Eurozone economy virtually stalled in the second quarter,
growing by only 0.2%, with the German economy expanded by only 0.1%. The
weakening growth has exacerbated the European debt crisis, with Greece
acknowledging now that a contracting economy would prevent it from
meeting its bailout deficit targets this year.

While Trichet said the ECB expected inflation to remain above 2% in
the months ahead, he said it would fall back beneath that level next
year. The staff forecast put HICP at a midpoint of 1.7% next year,
unchanged from the midpoint of the previous forecast.

Trichet avoided saying that there were “upside risks to price
stability,” a change he foreshadowed last month when he said the bank’s
inflation assessment was “under study.”

“The Governing Council views the risks to the medium-term outlook
for price developments as being broadly balanced,” he said.

Eurozone inflation increased at an annual rate of 2.5% in August,
the same as July. The ECB’s target is for inflation to remain below but
close to 2%.

Trichet said the bank would continue to “to monitor very closely
all developments.” In previous statements, Trichet said that the bank
would very closely monitor developments related to price stability in
particular.

The following table contains the ECB’s new forecasts, compared with
the ones they issued in June.

New Projections June Projections
Range Midpoint Range Midpoint
2011 GDP +1.4% to +1.8% +1.6% +1.5% to +2.3% +1.9%
2012 GDP +0.4% to +2.2% +1.3% +0.6% to +2.8% +1.7%
2011 HICP +2.5% to +2.7% +2.6% +2.5% to +2.7% +2.6%
2012 HICP +1.2% to +2.2% +1.7% +1.1% to +2.3% +1.7%

–Paris newsroom, +331-42-71-55-40; paris@marketnews.com

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