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ECB forecasts slightly better growth for 2014, rejects deflation fears

ECB forecasts slightly better growth for 2014, rejects deflation fears
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The European Central Bank’s policymakers think the eurozone’s recovery is fragile but on track and there’s no need to cut the cost of borrowing, or take any other measures, right now.

ECB President Mario Draghi gave those opinions as the bank’s economists slightly increased their growth predictions for this year and kept the inflation forecasts low.

Draghi told reporters at a news conference: “Incoming information confirms that the moderate recovery of the euro area economy is proceeding in line with our previous assessment.”

He continued: “Overall, we remain firmly determined to maintain the high degree of monetary accommodation and to take further decisive action if required.”

The latest view is the eurozone economy will expand by 1.2 percent this year, up from the central bank’s 1.1 percent forecast at the end of last year.

For 2015 it sees 1.5 and then 1.8 percent growth in 2016.

Draghi’s view is at odds with the International Monetary Fund which believes the ECB should be cutting interest rates and pumping out more stimulus money, perhaps through a US style quantitative easing programme.

That advice came from Reza Moghadam, head of the IMF’s European Department, in a blog on Wednesday.

The other focus was on inflation. The ECB’s downgraded its inflation outlook for this year to 1.0 percent, from the 1.1 percent forecast at the end of last year – well below its target level of “close to” 2.0 percent. For 2015 it is forecast to rise to 1.3 percent and then to reach 1.5 percent in 2016.

Inflation has been in what Draghi calls the “danger zone” – below 1.0 percent – for five months, but he rejected comparisons with Japan’s experience of deflation saying that risk is actually lessening.

In Japan companies and households held off from spending on expectations of lower prices ahead, leading to two decades of economic stagnation.