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FRANKFURT, GERMANY - PROFESSIONAL economic forecasters have raised their outlook for inflation and cut forecasts for 2009 growth, the latest European Central Bank bulletin showed on Thursday.
Forecasters polled in the ECB's third quarter survey said the 15-nation region's economy was expected to grow by 1.3 per cent in 2009, from 1.6 per cent expected in the previous survey. Forecasts for 2008 were unchanged at 1.6 per cent.
The economists, polled between July 16 and 18, raised expectations for inflation to 3.6 per cent in 2008, from 3.0 per cent forecast in May, and to 2.6 per cent in 2009, from 2.2.
Forecasters expected inflation to exceed the bank's 2 per cent ceiling in 2010 as well and saw upside risks from further increases in food and commodity prices and wages.
In the longer term, inflation was seen at 2.0 from 1.9 per cent earlier, creeping just above the ECB's goal.
Growth was seen slowing due to continued financial market turbulence, slowing housing markets and the strength of the euro, although it should recover in 2010.
The editorial of the monthly bulletin was virtually identical to the monetary policy statement released a week ago, after the ECB left rates on hold at 4.25 per cent and surprised markets with its subdued take on growth, prompting traders to scrap bets on further rate tightening this year.
Backing the view of rates on hold into 2009, the editorial said the 'current monetary policy stance will contribute to achieving the ECB's objective' of inflation below but close to 2 per cent.
The first forecasts for 2010 showed growth was expected to recover to 1.8 per cent, but inflation would remain above the ECB's ceiling at an average 2.1 per cent.
ECB staff in June forecast inflation of about 3.4 per cent this year and 2.4 per cent in 2009 and saw growth of 1.8 per cent, slowing to 1.5 per cent next year.
But economists expect the next forecasts, due in early September, to be lower after ECB President Jean-Claude Trichet said last week - a comment repeated in the editorial - there would be a 'substantial weakening' in growth in mid-year.
Germany's economy, the largest in the bloc, shrank by 0.5 per cent in the second quarter and France's by 0.3 per cent.
Euro zone figures, due for release at 0900 GMT (5pm Singapore time), are expected to show a contraction of 0.2 per cent, according to a Reuters poll. -- REUTERS
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