The European Central Bank will trim growth and inflation projections for the next two years, news agencies reported today, bowing to an outlook clouded by high oil prices and weak sentiment.
But analysts said gloomier economic prospects for the euro zone are unlikely to prompt an interest rate cut when the ECB Governing Council meets tomorrow.
That view was reinforced by ECB President Jean-Claude Trichet who stressed again this week his commitment to keeping prices stable.
Market News International (MNSI), citing ECB sources, said the balance of risks has tipped to the downside since the ECB staff's March projections were released.
Growth in the 12-nation currency union has been hampered by high oil prices and the slow pace of market liberalisation in major economies such as Germany and Italy, the ECB has said.
The ECB staff will cut its forecast for gross domestic product to about 1.4 per cent in 2005, down from a 1.6 per cent mid point in the 1.2-2.0 per cent range staff projected three months earlier, MNSI reported.
For 2006 the ECB staff will downgrade growth to a 2.0 per cent mid point from 2.1 per cent, while in 2007 2.2 per cent growth is eyed, weaker than a previously unpublished 2.3 percent estimate, the agency said.
The ECB declined to comment on the report.
Economists are widely expecting a growth downgrade when the ECB releases updated outlook after its meeting tomorrow.
"Euro zone consumer and business sentiment is on the ropes. I think there's a new sense of realism coming into the ECB," said Bear Stearns economist David Brown, who believes the central bank will have to cut interest rates later this year.