ECB Slashes Euro Area Growth Forecasts for 2012, 2013

The European Central Bank on Thursday slashed its growth forecasts for the Euro Area for both 2012 and 2013, and projected a return to growth in 2014.

ECB president Mario Draghi told a news conference in Franfkfurt Thursday that ECB is now forecasting eurozone gross domestic product ranging from growth of 0.3% to a decline of 0.9% next year.

That compares with a September forecast of between 1.4% growth and 0.4% contraction, and the OECD's latest projection of a decline of 0.1%.

But the region's economy is expected to return to growth of 1.2% in 2014, Draghi added.

Thus, the European Central Bank slashed its growth and inflation forecasts for 2013, raising the prospect of a further easing in monetary policy next year, after it kept interest rates on hold Thursday.

"Over the shorter term, weak activity is expected to extend into next year, reflecting the adverse impact on domestic expenditure of weak consumer and investor sentiment and subdued foreign demand," ECB President Mario Draghi said as cited by CNN.

The euro zone fell back into recession in the third quarter, and many private forecasters expect the region's economy to contract further in 2013.

Inflation was forecast to fall to between 1.1% and 2.1% next year, from 2.5% in 2012, and to between 0.6% and 2.2% in 2014, the ECB said.

Draghi said the ECB continued to see downside risks to the economic outlook stemming from the eurozone debt crisis and the US fiscal cliff debate, but had not changed its view on the medium-term risks to inflation.

"Risks to the outlook for price developments are seen as broadly balanced, with downside risks stemming from weaker economic activity and upside risks relating to higher administered prices and indirect taxes, as well as higher oil prices," he said.

The midpoint of the inflation forecast for 2014 is 1.4%, lower than some economists were expecting. The ECB's medium-term target is to keep inflation below, but close to, 2%.