Eurozone: ECB holds rates, trims growth projections
March 7, 2013
At its 7 March policy meeting, the European Central Bank (ECB) kept the refinancing rate unchanged at a record low of 0.75%. The decision, which was expected by FocusEconomics panellists, represents the eighth consecutive month in which the ECB leaves the policy rate unchanged.
Following the 0.6% contraction in GDP recorded in the fourth quarter, monetary authorities believe that economic activity should stabilize during the first part of 2013. According to the ECB, a gradual recovery will begin at the end of the year, as an improved global outlook will boost exports and the accommodative policy stance will sustain domestic demand.
Risks to the outlook remain, nonetheless, on the downside and relate "to the possibility of weaker than expected domestic demand and exports and to slow or insufficient implementation of structural reforms in the Euro area". Against this backdrop, the ECB growth trimmed its growth projections compared to its previous ones from December. Currently, the ECB sees GDP contracting somewhere between 0.9% and 0.1% in 2013 (December projection: -0.9% / 0.3%) and then recovering to a range of between 0.0% and 2.0% in 2014 (December projection: 0.2% / 2.2%). FocusEconomics panellists expect a 0.1% contraction in 2013, followed by a mild 1.1% expansion in 2014.
Regarding the outlook for price developments, the ECB maintains the view that risks are on balance. Inflation is seen dropping below 2% "in the coming months". Against this backdrop, the ECB expects inflation to sit between 1.2% and 2.0% in 2013 (December projection: 1.1% / 2.1%). For 2014, the ECB expects inflation to range between 0.6% and 2.0% (December projection: 0.6% / 2.2%). FocusEconomics panellists expect a 0.1% contraction in 2013, followed by a mild 1.1% expansion in 2014.
FocusEconomics Consensus Forecast panellists expect the policy rate to end 2013 at 0.66% and 2014 at 0.77%.
Author: Armando Ciccarelli, Head of Data Solutions