The European Central Bank is shaving roughly three-quarters of a percentage point off its growth forecasts and sees inflation falling more rapidly next year, a European monetary source said today.
Updated ECB staff projections to be released tomorrow will show euro zone economic growth between 0.4 per cent and 1 per cent for this year, and between 1.1 per cent and 2.1 per cent in 2004, the source told Reuters.
The growth figures have been revised downward from December forecasts for euro zone growth of between 1.1 per cent and 2.1 per cent in 2003 and between 1.9 per cent and 2.9 per cent in 2004.
But for 2004, inflation is seen retreating to between 0.7 per cent and 1.9 per cent, compared with a range of 1.0 per cent and 2.2 per cent that was previously forecast, the monetary source said.
The euro's recent rise against the dollar was a key reason for the downsizing of the bank's inflation forecast, while dropping energy prices had also contributed, the source said.
The euro has rallied roughly 12 per cent this year against the dollar, hitting its highest levels ever over $1.19, sapping import prices through oil prices that are paid for in dollars.
The bank in its economic forecasts assumes unchanged interest rates and foreign exchange values. It also assumed oil prices to drop to $23.00 a barrel towards the end of 2004, the source said.