Forecasters Cut Euro Area Growth, Inflation Expectations: ECB Survey

Professional forecasters lowered the growth, inflation and unemployment expectations for the euro area for this year and next, results of a survey by the European Central Bank showed on Friday, thus justifying the need for monetary and fiscal stimulus.

Inflation expectations for this year and next were cut to 1.2 percent, from 1.3 percent and 1.4 percent, respectively, predicted previously, the Survey of Professional Forecasters for the fourth quarter revealed.

The inflation expectation for 2021 was trimmed to 1.4 percent from 1.5 percent. The longer term inflation expectation, which refer to 2024, was retained at 1.7 percent.

The downward revisions were mainly attributed to lower oil prices, to actual inflation out-turns being lower than anticipated and to the worsened economic outlook, the ECB said.

“With regard to the ECB’s September monetary policy package, SPF respondents, on average, reported that it had a small net positive impact on their inflation and growth expectations, although the precise magnitude is difficult to assess,” the survey report said.

The September stimulus package of the ECB included a 10 basis point cut to the deposit rate to -0.50 percent, a restart of the asset purchase programme, significant changes to forward guidance and the launch of a tiering system for reserve remuneration, among others.

Core inflation expectation for this year was retained at 1 percent, while that for next year was lowered to 1.2 percent from 1.3 percent. The figure excludes prices of energy, food, alcohol and tobacco.

For 2021, core inflation is projected at 1.4 percent, which is lower than the 1.5 percent predicted earlier. The longer term expectation was cut to 1.6 percent from 1.7 percent.

The balance of risks remained to the downside, although less than before, the report said.

Growth forecasts for this year was lowered to 1.1 percent from 1.2 percent, in the latest survey. The outlook for next year was cut to 1 percent from 1.3 percent.

The growth projection for 2021 was cut to 1.3 percent from 1.4 percent. The longer term projection was retained at 1.4 percent.

“Respondents attributed their revisions to weak economic data and the persistence of uncertainty related to Brexit and foreign trade in general,” the ECB report said.

“Some respondents mentioned that their baseline scenarios factor in some stimulus from fiscal loosening, on top of the small expected effect of the ECB’s recent monetary policy measures.”

In his final post-decision press conference on Thursday, ECB President Mario Draghi stressed on the need for more support from fiscal policy to help create a conducive environment for the central bank to raise interest rates in future.

The latest survey showed that the unemployment rate is forecast to ease to 7.5 percent next year from 7.6 percent this year, and drop further to 7.4 percent in 2021. That compares to 7.6 percent, 7.4 percent and 7.3 percent projected in the previous survey.

The longer term projection for unemployment rate was raised to 7.4 eprcent from 7.3 percent.

The material has been provided by InstaForex Company – www.instaforex.com