ECB Says Eurozone's Moderate Recovery Damped By External Developments

ECB Says Eurozone's Moderate Recovery Damped By External Developments

Euro area economic recovery is set to continue at a moderate pace as global concerns such as the emerging market slowdown and a stronger euro weaken prospects for stronger expansion, the European Central Bank said in its latest economic bulletin released Thursday.

"The economic recovery in the euro area is continuing, albeit with signs of a moderation in growth at the beginning of the year due to a weaker external environment," the bank said.

The central bank expects domestic demand to be further supported by its monetary policy measures and their favorable impact on financial conditions, the slightly expansionary fiscal stance, and the favorable impact on employment of past structural reforms.

Further, the low price of oil should provide additional support for households' real disposable income and corporate profitability, and thus for private consumption and investment, the ECB said.

The ECB announced a slew of stimulus measures for the euro area economy earlier this month, that included a cut to all three of its interest rates and an expansion to its asset purchase programme.

The bank also announced a new round of longer-term refinancing operations and decided to include investment grade non-bank debt in its list of eligible assets for purchases.

"Looking ahead, the economic recovery is expected to proceed at a moderate pace," the bank said.

"However, the economic recovery continues to be dampened by subdued growth prospects in emerging markets, volatile financial markets, the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms."

The ECB's assessment is in sync with the macroeconomic projections presented by its staff earlier this month. The euro area growth forecast for this year was lowered to 1.4 percent from 1.7 percent. The outlook for next year was cut to 1.7 percent from 1.9 percent. Growth was seen at 1.8 percent for 2018.

The inflation forecast for this year was sharply cut to 0.1 percent from 1 percent. The projection for next year was lowered to 1.3 percent from 1.6 percent. Inflation was seen at 1.6 percent in 2018.

"On the basis of current futures prices for energy, inflation rates are expected to remain at negative levels in the coming months and to pick up later in 2016," the ECB said in its bulletin.

"Thereafter, supported by the ECB's monetary policy measures and the expected economic recovery, inflation rates should recover further."

The ECB releases its Economic Bulletin eight times a year, two weeks after each monetary policy meeting. The next issue is scheduled to be released on May 05.

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