© Reuters. FILE PHOTO: Specialists work on a crane in front of the European Central Bank (ECB) in Frankfurt, Germany
FRANKFURT (Reuters) – The euro zone economy will grow slower this year than earlier thought while a temporary surge in inflation is likely to exceed a previous projection, a key European Central Bank survey showed on Friday. The ECB left policy unchanged on Thursday, arguing that copious stimulus is still needed to see a battered economy through yet another wave of the coronavirus pandemic that is keeping much of the services sector shuttered. But with vaccinations finally progressing, the economy is likely to grow quickly in the coming quarters, even if this rebound is now seen somewhat delayed, the latest edition of the ECB’s Survey of Professional Forecasters, a key input in policy deliberations, showed. The euro zone economy is seen expanding by 4.2% this year, below a previous projection for 4.4%, but next year’s growth outlook was upgraded to 4.1% from 3.7%, indicating that the eventual rebound could be steeper than earlier seen. Still, projections beyond next year were left steady, suggesting that economists see little change in the bloc’s growth potential, even as the European Union prepares to deploy a 750 billion euro recovery package. Inflation this year is now seen at 1.6%, according to the survey, above the 0.9% projected three months ago and also above the 1.5% forecast by the ECB staff in March. But projections beyond 2021 were left unchanged with the 2025 forecast still at 1.7%, below the ECB’s target of almost 2%, indicating that the bank is on course to undershoot its target for well over a decade.
The ECB will next meet on June 10 and policymakers will have to decide whether to cut stimulus as the recovery starts or to maintain support despite what is likely to be a quick rebound.
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