ECB cuts growth forecast

The European Central Bank has cut its eurozone economic forecasts for this year and next year, and warned of difficult times ahead for the single currency.  

Mario Draghi, the president of the ECB, said that the 17-nation bloc's economy is expected to shrink by 0.5% this year, although he predicted some signs of recovery in late 2013.  

“Weak activity is expected to extend into next year,” said Draghi after a meeting of the ECB governing council at which it was decided to keep the main interest rate at 0.75%, a record low. He said that the governing council had discussed possible rate changes, but that the “prevailing consensus was for unchanged rates”. That decision means the main refinancing rate stays at its lowest level since the single currency was introduced in 1999.  

Draghi said the ECB expected inflation to fall below 2% next year. The target rate is below but close to 2%.   The ECB also revised down its forecast for eurozone economic growth in 2013 to between -0.9% and +0.4%. In September, it forecast a range of -0.4% to +1.4% for the same period. For 2014, it has now forecast growth of between 0.2% and 2.2%.  

“Later in 2013, economic activity should gradually recover as global demand strengthens and our accommodative monetary-policy stance and significantly improved financial market confidence work their way through to the economy,” Draghi said.  

Draghi also confirmed that the ECB would continue to offer unlimited liquidity to eurozone banks until at least the middle of next year.