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

Professional forecasters have cut their outlook for euro zone inflation and growth, underlining a trend that could prompt the European Central Bank to take more action to kick-start the region’s flagging economy.

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

Citing falling oil prices and widespread political tensions in Ukraine and the Middle East, they also predicted growth in economic output would slow to 1.2 percent next year, having previously forecast 1.5 percent.

Speaking to an audience of Wall Street bankers and economists in New York, Benoit Coeure, a member of the ECB’s Executive Board, conceded that low inflation was a worry.

“What we see is a subdued outlook for inflation and a weakening of the growth momentum and a continuously sluggish momentum in credit dynamics, which all confirm the need for a very accommodative monetary stance for an extended period of time.”

Addressing the problem, is, however, complex. Some doubt, for example, that buying state bonds would help much.

“We cannot just buy any kind of asset expecting that there will be spillovers to other market segments, because it doesn’t work, or it works only to a limited extent,” said Coeure.

The experts’ view is closely watched by markets as a gauge of how the ECB sees inflation, its policy anchor. Some investors read the report as a signal that the ECB could extend debt buying to state bonds, a step Germany has resisted.

The ECB will update its own staff forecasts next month. Annual euro zone inflation was 0.4 percent in October.

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

In Germany, the bloc’s top economy, consumer prices were confirmed as falling 0.3 percent on the month and rising 0.7 percent on the year, the Federal Statistics Office said. (Reuters)