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ECB tweaks eurozone growth, inflation forecasts

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ECB tweaks eurozone growth, inflation forecasts

Mario Draghi

(FRANKFURT) - The European Central Bank on Thursday downgraded slightly its growth forecast for the 17-country eurozone for this year, but revised upwards fractionally its prognosis for next year as it held its key interest rates steady.

The eurozone economy is now projected to shrink by 0.6 percent this year and then grow by 1.1 percent next year, ECB chief Mario Draghi told a regular news conference.

In March, the ECB had been pencilling in a contraction of 0.5 percent for 2013 and growth of 1.0 percent for 2014.

"The governing council continues to see downside risks surrounding the economic outlook for the euro area. They include the possibility of weaker than expected domestic and global demand and slow or insufficient implementation of structural reforms in euro area countries," Draghi said.

The bank also adjusted slightly its forecast for area-wide inflation this year.

Inflation would stand at an annual average 1.4 percent in 2013 and 1.3 percent in 2014, Draghi said.

Compared with March, "the projection for inflation for 2013 has been revised downwards, mainly reflecting the fall in oil prices, while the projection for 2014 remains unchanged," the ECB chief said.

"Incoming information has confirmed our assessment which led to the cut in interest rates in early May," Draghi explained, referring to the decision to lower the key "refi" refinancing rate to an all-time low of 0.5 percent.

Underlying price pressures were expected to remain subdued over the medium term and inflation was expected to remain within the ECB's definition of price stability, which is an inflation rate below, but close to, 2.0 percent.

"At the same time, recent economic sentiment survey data have shown some improvement from low levels. The accommodative stance of our monetary policy, together with the significant improvements in financial markets since mid-2012, should contribute to support prospects for an economic recovery later in the year," Draghi said.

"Against this overall background, our monetary policy stance will remain accommodative for as long as necessary. In the period ahead, we will monitor very closely all incoming information on economic and monetary developments and assess any impact on the outlook for price stability," he said.

And the ECB "remains ready to act" if necessary, he insisted.

Draghi said the ECB sees no risk of deflation -- a general decline in prices -- in the single currency area.

"We don't see anything like that (deflation) in any country," he said, adding that if the ECB did, it would have to "sit down and seriously consider" what action to take.

For the time being, the fall in prices was limited to specific categories of goods, such as oil and foodstuffs, he said.

European Central Bank

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