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ECB model suggests euro zone growth could slow further - sources

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By Reuters
ECB model suggests euro zone growth could slow further - sources
FILE PHOTO: Reflection of the sign of the European central Bank (ECB) is seen ahead of the news conference on the outcome of the Governing Council meeting, at the ECB headquarters in Frankfurt, Germany, March 7, 2019. REUTERS/Kai Pfaffenbach   -   Copyright  KAI PFAFFENBACH(Reuters)

By Balazs Koranyi

WASHINGTON (Reuters) – An internal European Central Bank model indicates the euro zone’s economic growth could slow further in the second quarter, suggesting the projected recovery may be delayed even further, two sources familiar with the discussion said on Friday.

The ECB’s nowcasting model, presented to policymakers at Wednesday’s Governing Council meeting, indicated quarterly growth was just above 0.2 percent in the first three months of the year and may be somewhat weaker in the second quarter, the sources, who asked not to be named, told Reuters.

With euro zone growth slowing sharply, the ECB has already backtracked on plans to raise interest rates this year and has instead agreed to provide even more stimulus, hoping to prop up confidence while the bloc goes through its soft patch.

But the weakness may last longer than thought even just a few weeks ago, underpinning ECB President Mario Draghi’s generally dovish tone, the sources said, as global finance leaders gathered in Washington for the International Monetary Fund and World Bank spring meetings.

“We’ve seen nothing in the data that would suggest any sort of positive surprise,” a third source said. “Actually, the March projections already look somewhat optimistic.”

But the sources added that the nowcasting model, which looks at a wide array of recent indicators, is prone to big swings and is not necessarily accurate so early into a quarter.

An ECB spokesman declined to comment.

The ECB’s economic projections put quarterly growth at 0.2 percent in the first three months of the year and at 0.3 percent in the second quarter. The European Commission, meanwhile, sees growth in the first two quarters at 0.3 percent and 0.4 percent, respectively.

Speaking earlier on Friday, ECB chief economist Peter Praet said he expected growth to bottom out in the second quarter before rebounding in the second half of the year.

But the long-predicted recovery hinges on Germany, which barely avoided a recession in the second half of 2018 and has underperformed all expectations in recent months.

The IMF recently predicted that growth could be halved to 0.8 percent this year, and Bundesbank President Jens Weidmann said this was ‘plausible’, even if it was well below most recent government and central bank projections.

(Reporting by Balazs Koranyi; Editing by Paul Simao)