Frankfurt, 12/06/2003 (Agence Europe) - While the ECB President Wim Duisenberg was addressing the European Parliament's Economic and Monetary Affairs Committee (see above), in its June newsletter the European Central Bank was unveiling much lower than expected growth forecasts for the eurozone and predicting a sharp rise in inflation in 2004.
The ECB now forecasts growth of between 0.4% and 1.0% in 2003 in the eurozone, rather than 1.1% - 2.1% (its December 2002 estimate for 2003). It has cut its growth forecasts for 2004 from 1.9-2.9% to 1.1-2.2%. These pessimistic forecasts clearly explain why the ECB cut interest rates on 5 June by 50 base points, to 2%, their lowest level yet (see Europe of 6 June, p.12). The ECB's assessment leads commentators to hope for the easing of monetary policy to continue in order to stimulate growth. In its newsletter the ECB says the main factor behind its revision of its December forecasts was the higher nominal exchange rate of the dollar due to its rise of around 11% against the dollar since November 2002. The newsletter repeats the message sent out by the bank on 5 June, namely that inflation is continuing to fall significantly while economic growth remains sluggish. The ECB is now predicting 1.8-2.2% inflation in the eurozone in 2003 (as against previous forecasts of 1.3-2.3%) with prices rising by 0.7%-1.9% (as against its December forecasts of 1.3-2.3%).