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ECB cuts inflation and growth forecasts ECB cuts growth and inflation outlook
(34 minutes later)
The European Central Bank (ECB) has cut its inflation and growth forecasts for 2015 and the next two years.The European Central Bank (ECB) has cut its inflation and growth forecasts for 2015 and the next two years.
It expects inflation in the eurozone to remain "very low" for some years as threats to economic growth increase.It expects inflation in the eurozone to remain "very low" for some years as threats to economic growth increase.
ECB president Mario Draghi said the bank expected inflation to be 0.1% for 2015, rising to 1.5% in 2016 and 1.7% in 2017, dampened by lower energy prices. ECB president Mario Draghi said Europe's economic recovery would continue "albeit at a somewhat weaker pace than expected".
He was speaking after the ECB kept its main interest rate on hold at 0.05%.He was speaking after the ECB kept its main interest rate on hold at 0.05%.
Mr Draghi also admitted that inflation could turn negative in the coming months. The ECB now forecast eurozone economic growth of 1.4% in 2015, down from 1.5%, and 1.7% in 2016, compared with its previous projection of 1.9%.
The ECB made no change to its bond-buying programme, but Mr Draghi said it could be extended beyond its planned conclusion in September 2016 if necessary. However, Mr Draghi said that risks to the outlook for economic growth and inflation had worsened since mid-August, when the latest projections were calculated.
Europe's economic recovery would continue "albeit at a somewhat weaker pace than expected", Mr Draghi said, amid concern about the fallout from China's economic slowdown. Euro falls
Outlook worsens "Lower commodity prices, a stronger euro, somewhat lower growth, have increased the risk to a sustainable path of inflation towards 2%," he told a news conference in Frankfurt.
The ECB now forecasts eurozone economic growth of 1.4% in 2015, down from 1.5%, and 1.7% in 2016, compared with its previous projection of 1.9%.
However, Mr Draghi said that risks to the outlook for economic growth and inflation had worsened since mid-August when the latest projections were calculated.
"Lower commodity prices, a stronger euro, a somewhat lower growth, have increased the risk to a sustainable path of inflation towards 2%," he told a news conference in Frankfurt.
The euro fell sharply following Mr Draghi's comments, dropping a cent against the dollar to $1.1127.The euro fell sharply following Mr Draghi's comments, dropping a cent against the dollar to $1.1127.
He also admitted that inflation could turn negative in the coming months.
The bank expected inflation to be 0.1% for 2015, rising to 1.5% in 2016 and 1.7% in 2017, dampened by lower energy prices.
The ECB made no change to its bond-buying programme, but Mr Draghi said it could be extended beyond its planned conclusion in September 2016 if necessary.
Fears of negative inflation - also known as deflation - prompted the bank to start its quantitative easing programme in March.
The ECB has been buying €60bn of government bonds a month in a bid to increase inflation in key economies such as France and Germany.
However, eurozone inflation stood at just 0.2% in August - far below the 2% target.
Capital Economics said the bank had paved the way for the rate of asset purchases to be increased.
The central bank also kept the rate for bank overnight deposits on hold at minus 0.2%, which means banks must pay to hold funds at the central bank.The central bank also kept the rate for bank overnight deposits on hold at minus 0.2%, which means banks must pay to hold funds at the central bank.
'Unspectacular' growth'Unspectacular' growth
Earlier on Thursday, a survey indicated that activity among eurozone businesses rose at the fastest pace for more than four years in August.Earlier on Thursday, a survey indicated that activity among eurozone businesses rose at the fastest pace for more than four years in August.
The composite purchasing managers' index (PMI) compiled by Markit rose to 54.3 last month, up from July's figure of 53.9. A figure above 50 indicates expansion.The composite purchasing managers' index (PMI) compiled by Markit rose to 54.3 last month, up from July's figure of 53.9. A figure above 50 indicates expansion.
Markit chief economist Chris Williamson said the PMI results suggested that the eurozone's economy would grow by 0.4% in the third quarter of the year, which he called "a solid - albeit unspectacular - rate of expansion".Markit chief economist Chris Williamson said the PMI results suggested that the eurozone's economy would grow by 0.4% in the third quarter of the year, which he called "a solid - albeit unspectacular - rate of expansion".
Eurostat said on Thursday that eurozone retail sales rose by 0.4% in July compared with June, roughly in line with expectations and considerably better than the 0.2% decline in June.Eurostat said on Thursday that eurozone retail sales rose by 0.4% in July compared with June, roughly in line with expectations and considerably better than the 0.2% decline in June.
Consumer confidence appeared to be particularly strong in Germany, Europe's biggest economy, where retail sales jumped by 1.4% last month.Consumer confidence appeared to be particularly strong in Germany, Europe's biggest economy, where retail sales jumped by 1.4% last month.