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Financial News: ECB Survey Shows Falling Inflation Expectations

ECB Survey Shows Falling Inflation Expectations

07/26/2019 - 05:06:00 (RTTNews)

(RTTNews) - Eurozone inflation expectations continued to weaken into the third quarter amid lingering high level of uncertainties and downside risks, the results of a key survey by the European Central Bank showed on Friday.

The results support the easing bias adopted by the central bank on Thursday as it signaled an interest rate cut as early as September, further alterations to forward guidance and possibly a stimulus package that could include a tiering system for deposit rates and a fresh round of asset purchases. HICP inflation expectations for 2019, 2020 and 2021 were revised down by 0.1 percentage points each to 1.3 percent, 1.4 percent and 1.5 percent, respectively, the ECB Survey of Professional Forecasters - Third quarter, showed.

The latest survey was conducted between July 1 and 5.

Survey respondents attributed the downgrades mainly to "downward surprises in the inflation data since the previous survey and were considered to be a consequence of the downward revisions to real economic growth in 2020 and 2021", the survey report said. "This profile of expected inflation is comparable with the expectations published in other surveys," the bank added. For these three years, forecasts of core inflation that excludes prices of energy, food, alcohol and tobacco were also revised down by 0.1 percentage points each to 1.2 percent, 1.4 percent and 1.6 percent, respectively. ECB President Mario Draghi said on Thursday that inflationary pressures in Eurozone remain subdued and that indicators of expectations have declined.

Longer-term forecast, which is for 2024, for headline inflation eased to 1.7 percent from 1.8 percent, while that for core price growth was unchanged at 1.7 percent.

"As with shorter-term inflation expectations, perceptions of overall uncertainty remained high, with the balance of risks remaining to the downside," the ECB said.

The real gross domestic product growth forecast for 2019 was unrevised at 1.2 percent, while that for the next year was scaled down to 1.3 percent from 1.4 percent.

The euro area growth projection for 2021 was unchanged at 1.3 percent.

Longer-term growth expectations, referring to 2024, remained stable at 1.4 percent.

After signaling stimulus ahead, Draghi said the macroeconomic outlook in the euro area is "getting worse and worse", especially in manufacturing, which is a crucial sector for the big economies in the bloc.

He also said that a rebound in growth in the second half of this year now seem less likely.

While, on average, forecasts for 2019 remained unchanged, around 30 percent of forecasters made upward revisions and a similar share downwards revisions, the survey report said.

Respondents who revised up their view cited the better-than-expected GDP growth in the first quarter and the anticipation that the US and China will re-start trade talks as reasons for their move.

Those who revised down their expectations pointed to continuous weakness of business sentiment indicators, foreign trade and manufacturing activity as well as rising concerns regarding Brexit. A more pessimistic view on Brexit was another factor behind some forecasters' downward revisions.

"The probability assigned to real GDP growth of over 1.5 percent declined at all horizons," the ECB report said.

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