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ECB pessimism

February 16, 2012

Professional forecasters polled by the European Central Bank have revised downwards growth expectations for the eurozone, saying that the ongoing debt crisis and worsening credit conditions are to blame.

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Economic pundits surveyed by the European Central Bank believe growth in the eurozone will come to a standstill this year. The 58 experts interviewed expect the eurozone economy to contract by 0.1 percent in the current year and post 1.1 percent growth in 2013, the ECB said on Thursday.

The new forecasts mark a substantial downward revision from the previous survey in November when growth for the region was seen at 0.8 percent this year and 1.8 percent in 2013.

"The more negative baseline outlook is due to additional fiscal consolidation in many eurozone countries, a further tightening of credit conditions, lower confidence and a generally higher level of uncertainty," the ECB said.

Keeping the lid on inflation

The ECB bulletin was somewhat more optimistic with regard to inflation rates in the eurozone. It expected the 17 countries, which share the single currency, to have an annual average inflation of 1.9 percent, only slightly up from the previous forecast of 1.8 percent for the current year.

At the same time, the forecast for next year was revised slightly downwards to 1.7 percent from 1.8 percent previously.

Sweden's Central Bank (Riksbank) cut its key interest rate by 0.25 points to 1.50 percent on Thursday, citing a weaker economic outlook due to dwindling growth perspectives in the eurozone.

"The rate cut was necessary in order to stabilize inflation around two percent and resource utilization around a normal level," Riksbank said in a statement in Stockholm.

Sweden has been in the European Union since 1995, but rejected joining the eurozone in a referendum in 2003. However, the country is heavily influenced by the performance of the eurozone economies.

hg/nk (AF, dpa)