The European Central Bank slashed its forecasts today for growth and inflation over the next two years, saying the outlook had deteriorated since its last staff forecasts were published in September.
It forecast 2014 inflation at 0.5 percent, rising slightly to 0.7 percent next year and 1.3 percent in 2016.
Staff cut their prediction for economic output in the euro zone to 0.8 percent this year, 1.0 percent in 2015 and 1.5 percent in 2016.
In September, ECB staff had predicted that inflation would be 0.6 percent this year, then rise to 1.1 percent and 1.4 percent in 2015 and 2016 respectively.
It had also forecast in September that gross domestic product would grow by 0.9 percent this year and by 1.6 percent and 1.9 percent in 2015 and 2016 respectively.
By lowering its forecasts, which show how the ECB expects the economy to develop, the euro zone central bank will heighten expectations that it will take further steps to bolster the bloc’s flagging economy.
ECB President Mario Draghi recently threw the door open for drastic measures to prevent growth and inflation from sliding further and expectations are rising that a move could come as soon as the first three months of next year.
He said today the falling price of oil would have mixed impact on the euro zone, boosting the economy by removing costs but also dragging down already-weak inflation.
He expressed concern that the lower price might become «embedded» in lower wages.
The estimate for the direct and indirect impact of falling oil in inflation was 0.4 percent next year and 0.1 percent the year after.
«Oil prices have an obvious direct impact on the price of energy and on that ground, the effect is unambiguously positive,» Draghi told a news conference.
But he said there were less positive effects on inflation.
«It could alter the profile of inflation rates over the coming months, especially the next few months,» he said.
Euro zone inflation is well below the ECB’s target and has promoted expectations of quantitative easing – or sovereign bond buying – early next year.
buenosairesherald.com