ECB Forecasters Downgrade GDP Outlook

The intensification of fiscal consolidation in some euro area nations and higher uncertainty over debt crisis are set to weigh on overall growth prospects, results of the Survey of Professional Forecasters released with the European Central Bank monthly bulletin showed Thursday.

The Eurozone economy is forecast to shrink 0.3 percent this year, compared to the prior estimate of 0.2 percent fall. The 2013 growth outlook was lowered to 0.6 percent from 1 percent.

Downside risks to euro area GDP growth prevail, deriving mainly from an escalation of the sovereign debt crisis, it said. Other downside risks include a further fall in confidence, higher levels of uncertainty and lower external demand owing to a slowdown in the global economy.

Meanwhile, forecasters assess the main upside risk to the baseline outlook as the depreciation of the euro potentially supporting exports.

In the monthly bulletin, the ECB reiterated that a further intensification of financial market tensions has
the potential to affect the balance of risks for both growth and inflation on the downside. The Governing Council expects the euro area economy to recover only very gradually.

According to SPF survey, inflation is set to slow to 1.7 percent in 2013 from 2.3 percent this year. While the estimate for 2012 was maintained, the forecast for 2013 was revised down from 1.8 percent.