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ECB projections to show future growth barely above 1% - sources

ECB projections to show future growth barely above 1% - sources
The skyline, with the banking district and the European Central Bank (ECB) visible, is photographed in Frankfurt, Germany, August 13, 2019. REUTERS/Kai Pfaffenbach -
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By Balazs Koranyi

FRANKFURT (Reuters) – The European Central Bank will cut some of its growth forecasts at its meeting on Thursday and its projections will also show only a modest rise in underlying and headline inflation in the coming years, two sources familiar with the matter said.

Growth will be not far above 1 percent both this year and next, the figures are expected to show, underpinning the ECB’s plans to approve more stimulus, the sources, who asked not to be named, told Reuters.

The forecasts suggest that, even with a new round of stimulus, the ECB will struggle to hit its inflation target, something it has failed to do since 2013. The central bank targets euro zone inflation of just below 2%.

An ECB spokesman declined to comment.

With growth slowing, the ECB has all but promised more support for the economy in one of the most highly anticipated meetings in years, leaving markets only to guess the composition of its measures.

It is almost certain to cut rates, promise to keep rates low for longer and provide banks relief from the side effects of negative rates. However, new asset purchases, priced in by markets, are not a done deal with some conservative policymakers opposing the move.

Economists in a Reuters poll expected the euro zone’s economy to expand by 1.1 percent both this year and next, below the ECB’s own projection for 1.2 percent this year and 1.4 percent in 2020.

Although the domestic economy has so far remained resilient to weak foreign demand and overseas political uncertainty, more recent figures are starting to show the effect of contagion with a slowdown in employment growth an weakness in some sentiment indicators.

Headline and underlying inflation are still expected to rise but the increase will be slow and protracted, mostly due to weaker economic growth, the sources added.

The ECB’s staff projections, updated once every quarter, form the backbone of the ECB’s decisions and normally justify policy moves.

Key figures are usually read out by ECB President Mario Draghi while the bulk of the projections are published at 1330 GMT.

(Reporting by Balazs Koranyi; Editing by Toby Chopra)

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