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European Central Bank cuts growth forecasts and holds rates | |
(about 1 hour later) | |
The European Central Bank (ECB) has revised down its eurozone growth forecasts for this year and next as "economic weakness extends into 2013". | |
ECB President Mario Draghi said the bank expected the bloc's economy to shrink by about 0.5% this year, before recovering later in 2013. | |
He said weak consumer and investor sentiment was weighing on growth. | |
Earlier, the ECB held the benchmark eurozone interest rate at the record low of 0.75%, as had been expected. | |
Mr Draghi said rates had been left unchanged due to higher energy prices, rising taxes and the fact inflation fell from 2.5% to 2.2% last month. | |
Interest rates are the main tool used by central banks to influence demand and therefore prices in the economy. | |
Mr Draghi said the bank expected inflation to fall below 2% next year. The target rate is below but close to 2%. | |
Interest rates have been at 0.75% for five months, after July's cut from 1%. The Bank of England also kept its main interest rate unchanged on Thursday, leaving it at 0.5%. | |
'Improvement' | |
The ECB revised down is forecast for the eurozone economic growth in 2013 to between minus 0.9% and plus 0.4%. | |
For 2014, it forecast growth of between 0.2% and 2.2%. | |
Mr Draghi said "persistent uncertainty" was weighing on economic activity, but added that a "strengthening global demand and a significant improvement in financial market confidence" would help fuel a recovery later in 2013. | |
The eurozone is back in recession as austerity measures designed to reduce debt levels continue to undermine demand and confidence. | The eurozone is back in recession as austerity measures designed to reduce debt levels continue to undermine demand and confidence. |
The economy of the 17-member bloc contracted by 0.1% between July and September, after shrinking 0.2% in the previous three months. | The economy of the 17-member bloc contracted by 0.1% between July and September, after shrinking 0.2% in the previous three months. |
Meanwhile, the unemployment rate is at a record high of 11.7%. | Meanwhile, the unemployment rate is at a record high of 11.7%. |
The eurozone was last in recession in 2009, when the economy contracted for five consecutive quarters. | The eurozone was last in recession in 2009, when the economy contracted for five consecutive quarters. |