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ECB survey points to weaker inflation

Thursday, August 14 09:43:15

Euro zone inflation will be weaker than previously expected this year and next, an updated survey for the European Central Bank indicated on Thursday, darkening the euro zone's economic outlook.

The quarterly Survey of Professional Forecasters (SPF) also suggested that this year's euro zone growth would be weaker than previously expected, adding to the bloc's woes after the German economy shrank in the second quarter and France stagnated.

The survey raises fresh questions about the ECB's threshold for embarking on a policy of quantitative easing (QE) - essentially, printing money to buy assets.

A Reuters poll of economists conducted on Aug. 7-12 pointed to a one-in-three chance of the ECB embarking on such an asset purchase programme in 2015.

Last week, ECB President Mario Draghi told his monthly news conference that the bank's policymaking Governing Council was "unanimous in its commitment" to use measures including QE if its medium-term outlook for inflation were to change.

Draghi also cited "heightened geopolitical risks" related to the impact on the euro zone economy from the Ukraine crisis.

Deutsche Bank has cut its 2015 inflation forecast for the 18-member single currency zone to 1.1 percent from 1.2 percent on the expectation of western European food manufacturers offloading excess output in the euro area as a result of a Russian ban on importing their produce.

However, some European officials expect that any impact from the Russia sanctions might show up in a more muted rebound, rather than a fall, in already weak food prices.

The ECB's third-quarter SPF showed a drop in the inflation forecast for this year to 0.7 percent from 0.9 percent previously, and a cut in the 2015 projection to 1.2 percent from 1.3 percent.

The ECB targets inflation of just below 2 percent over the medium term but the annual rate is running at just 0.4 percent, raising concerns that some countries could see deflation.

The forecasters' inflation projection for 2016 was unchanged at 1.5 percent. The longer-term forecast of 1.9 percent was up slightly from the 1.8 percent forecast in the second quarter.

They trimmed their growth forecast for this year to 1.0 percent from 1.1 percent. (Reuters)

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