ECB warned euro zone inflation, growth to be lower than expected

A large group of professional forecasters cut their outlook for euro zone inflation and growth, underlining a trend that could prompt the European Central Bank to take more policy action to kick-start the region's flagging economy.

The 61 economists, academics and other forecasters surveyed by the ECB expect euro zone inflation of 1.0 per cent next year and 1.4 per cent in 2016, data released on Thursday showed - down from earlier forecasts of 1.2 per cent and 1.5 per cent respectively.

Citing falling oil prices and widespread political tensions, they also predicted economic growth would slow to 1.2 per cent next year, having previously forecast 1.5 per cent.

“The balance of risks has become more clearly tilted to the downside. ... Respondents identify geopolitical tensions, mainly in Ukraine and Russia, but also in the Middle East, as by far the main risk,” the ECB’s report of the findings said.

The panel’s view is closely watched by markets as a gauge of how the ECB expects inflation to develop.

The central bank's President, Mario Draghi, said on Wednesday it would keep interest rates low and stood ready to take additional unconventional policy actions if inflation expectations did not pick up.

Some investors read the report as a signal that the ECB could extend its asset purchases to corporate bonds and possibility even government debt.

In Washington on Wednesday, the International Monetary Fund warned of downside risks to its growth projections for the euro zone, and urged the ECB to act if prices in the currency bloc continued to drift lower.

The ECB, whose inflation target is below but close to 2 per cent over the medium term, will update its own staff forecasts next month.

Annual euro zone inflation stood at 0.4 per cent in October.

Earlier on Thursday, a clutch of inflation readings from individual euro zone countries broadly confirmed the preliminary picture for that month.

In dominant economy Germany, consumer prices harmonised to compare with other European Union countries were confirmed as falling 0.3 percent on the month and rising 0.7 per cent on the year, the Federal Statistics Office said.

Parallel final numbers from Spain and Italy also confirmed preliminary data.

Reuters