The European Central Bank said euro-region economic growth and inflation will continue to slow as the global financial crisis bites.
"The intensification and broadening of the financial-market turmoil is likely to dampen global and euro-area demand for a rather protracted period of time,'' the Frankfurt-based ECB said in its monthly bulletin, echoing President Jean-Claude Trichet's November 6th policy statement.
"In such an environment, taking into account the strong fall in commodity prices over recent months, price, cost and wage pressures in the euro area should also moderate."
The ECB lowered its benchmark interest rate to 3.25 per cent last week, the second cut in less than a month, and Mr Trichet said he couldn't rule out further reductions.
Germany is in its worst recession in at least 12 years, growth figures showed today. The International Monetary Fund on November 6th predicted the euro region's economy will shrink 0.5 per cent in 2009.
Professional forecasters surveyed quarterly by the ECB lowered their inflation and growth expectations for the next two years and the longer term.
Inflation will average 3.4 per cent this year, 2.2 per cent in 2009 and 2 per cent in 2010, the survey showed, down from August forecasts of 3.6 per cent, 2.6 per cent, and 2.1 per cent respectively.
The five-year inflation outlook was revised down slightly to 1.99 per cent from 2.03 per cent.
The forecasters cut their 2008 economic growth prediction to 1.2 per cent from 1.6 per cent. Next year, they project growth of 0.3 per cent, down from the 1.3 per cent forecast in August.
Growth will pick up to 1.4 per cent in 2010, less than the 1.8 per cent expected in the last survey.
ECB council member Guy Quaden said this week the ECB will likely have to "modify substantially" its own projections for growth and inflation.
The bank publishes new forecasts after its next policy meeting on December 4th. "It's surely not excluded that the revision of the projections will have consequences o n the field of our monetary policy," Mr Quaden said.
Bloomberg