ECB cuts inflation forecasts

(FRANKFURT) - The European Central Bank on Thursday pared back its forecasts for inflation in the 18-country eurozone, justifying its decision to cut interest rates to new record lows.

ECB chief Mario Draghi said the central bank is expecting area-wide inflation to reach just 0.7 percent in 2014, way off the ECB's target of 2.0 percent.

Inflation would then pick up only slowly to 1.1 percent in 2015 and 1.4 percent in 2016, Draghi said.

In the ECB's previous set of forecasts in March, the bank had been pencilling in inflation rates of 1.0 percent in 2014, 1.3 percent in 2015 and 1.5 percent in 2016.

Turning to the growth outlook, the ECB also adjusted its forecasts for gross domestic product (GDP).

Area-wide growth this year was projected to come out at just 1.0 percent, lower than the previous forecast of 1.2 percent.

But growth would pick up to 1.7 percent in 2015, compared with the ECB's previous forecast of 1.5 percent, Draghi said. The bank held its 2016 forecast steady at 1.8 percent growth.

The ECB chief warned that the "risks surrounding the economic outlook for the euro area continue to be on the downside."

Geopolitical risks, as well as developments in emerging market economies and global financial markets, "may have the potential to affect economic conditions negatively," Draghi said.

"Other downside risks include weaker than expected domestic demand and insufficient implementation of structural reforms in euro area countries, as well as weaker export growth."