The European Central Bank cut its growth forecasts for the euro zone in 2004 and 2005 and predicted the economy would expand by 2.2 per cent in 2006 in new projections released today.
As expected, ECB President Mr Jean-Claude Trichet gave staff projections that reduced the midpoint of forecasts for 2004 growth to 1.8 per cent, from 1.9 per cent three months ago, and left its mid-point inflation forecast unchanged at 2.2 per cent.
For 2005, the mid-point for growth was cut to 1.9 per cent from 2.3 per cent, but inflation was revised up to 2 per cent, from 1.8 per cent, at the top of the ECB's ceiling.
The revisions mean the ECB is likely to leave interest rates on hold well into 2005 as the 12-nation bloc struggles to absorb the impact of a strong currency and high oil prices, analysts said.
The ECB Governing Council left its benchmark interest rate at 2 per cent for the 18th month in a row today after its monthly policy-making meeting in Frankfurt.
In its first forecasts for 2006, the ECB predicted the euro zone economy would expand by between 1.7 and 2.7 per cent while inflation stays within a range of 1 and 2.2 per cent.
The detailed forecasts show euro zone GDP growth is projected in a range of 1.6 to 2.0 per cent this year, compared with growth of between 1.6 and 2.2 per cent when the last forecasts were released in September.
ECB staff said growth would accelerate slightly to between 1.4 per cent and 2.4 per cent in 2005, compared with ranges published in September of 1.8 to 2.8 per cent.