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ECB raises inflation forecasts again, slashes 2023 growth outlook

The European Central Bank raised its euro zone inflation projections again on Thursday but slashed its growth outlook for 2023 as the loss of cheap Russian gas will weigh on confidence, consumption and investment in the bloc. The ECB has repeatedly underestimated inflation over the past two years, as actual price growth has exceeded even its most pessimistic scenarios, raising questions about the credibility of the forecasts. The bank now sees euro zone inflation at 8.1% this year against a 6.8% prediction in June, while the 2023 price growth estimate was raised to 5.5% from 3.5%. In 2024, the final year of its projection horizon, inflation is expected at 2.3%, above its 2% target.

While inflation was initially driven by high energy prices, a devastating drought is adding to price pressures and energy costs have started to seep into the broader economy, raising underlying price pressures. Growth will meanwhile suffer next year on the fallout of Russia’s war in Ukraine, particularly the impact of high energy prices. The ECB now sees GDP growth at 3.1% this year against its 2.8% expectation in June, but it slashed its 2023 expansion forecast to 0.9% from 2.1%. The following are the ECB’s quarterly growth and inflation projections through 2024.

Figures in brackets are previous forecasts from June.
The ECB targets inflation at 2%. 2022 2023 2024 GDP growth 3.1% (2.8%) 0.9% (2.1%) 1.9% (2.1%) Inflation 8.1% (6.8%) 5.5% (3.5%) 2.3% (2.1%)
Source: Reuters (Reporting by Balazs Koranyi; Editing by Hugh Lawson)

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