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Eurozone growth, inflation outlook gloomier

Eurozone growth, inflation outlook gloomier/AFP

Eurozone growth, inflation outlook gloomier/AFP

FRANKFURT, November 13- The economic skies above Europe are clouding over with both growth and inflation now seen lower than previously expected in the next few years, a European Central Bank survey showed on Thursday.

While a few months ago, most respondents in the ECB’s regular quarterly survey of professional forecasters had believed the trough of inflation had more or less been reached, the latest survey on Thursday suggested that may not be the case after all.

The findings will only add to widespread concern that the single currency area could be on the brink of deflation.

The SPF survey predicted that eurozone inflation would stand at just 0.5 percent in 2014, 1.0 percent in 2015 and 1.4 percent in 2016, all way below the ECB’s target of around 2.0 percent.

“The current low level of inflation is assessed to be driven by a combination of external factors — primarily the fall in oil prices, weak import prices and the lagged impact of the past appreciation of the euro — and domestic factors,” the ECB wrote.

Declining inflation is a concern because it carries the risk of outright falling prices, known as deflation, which deters consumers from spending in the belief they can wait and buy more cheaply later.

If that happens, demand suffers and companies put off investment, hurting employment and so setting off a vicious circle which can drag down the whole economy.

The new forecasts were lower than the previous survey in August.

 

– Growth also disappointing –

 

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The ECB said forecasters had pointed to a number of factors behind the downward revisions, such as “lower oil prices and weaker than expected economic activity.”

On the other hand, the recent depreciation of the euro would act as a counterbalancing factor in these revisions, it added.

Overall, however, the trend in inflation remained upwards, even if it would pick up only very slowly, the ECB insisted.

“The expected pick up in inflation is seen as being driven by a number of developments. In particular, these include ongoing, albeit moderate, economic growth, the recent depreciation of the euro and supportive monetary policy, as well as an expected stabilisation of, and even slight increase in, oil prices,” the survey said.

The SPF survey usually provides an indication of where the ECB’s own forecasts — scheduled for release in December — are headed.

Turning to the growth outlook, the SPF survey was also gloomier than in August.

The forecasters predicted that area wide gross domestic product (GDP) would grow by 0.8 percent in 2014, 1.2 percent in 2015 and 1.5 percent in 2016.

These were all lower than previously expected.

Here, the downward revisions were driven “by disappointing figures for GDP growth in the second quarter, as well as persisting low business confidence in some euro area countries, and a more pessimistic outlook for key export markets,” the ECB wrote.

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In the latest survey, the ECB asked professional forecasters whether the recent economic slowdown was expected to be a temporary phenomenon or part of a more sustained weakness in the economy.

“The respondents indicated that, so far, they regarded the fall in activity as a temporary phenomenon, although the responses suggested that the baseline forecasts were partly the result of recent geopolitical tensions translating into lower confidence and a wait and see attitude on the part of investors for the short term horizon,” the ECB said.

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