European Central Bank cuts euro area growth view

Mario Draghi, President of the European Central Bank (ECB), addresses the media following a meeting with the ECB

 Mario Draghi, President of the European Central Bank (ECB), addresses the media following a meeting with the ECB’s council in Frankfurt am Main, western Germany, on September 6, 2012.
The European Central Bank (ECB) has cut its forecast for growth in the eurozone for both this year and next as the debt crisis is taking heavy toll on the 17-nation bloc.

The ECB said its staff expects the economy to shrink by 0.4 percent in 2012 and then grow by 0.5 percent in 2013, a reduction from its previous call in June of minus 0.1 percent for this year and plus 1.0 percent next year.

The bank also raised its forecast for inflation, estimating that prices would rise by 2.5 percent in 2012, up from a June forecast of 2.4 percent.

Prices are seen rising by 1.9 percent in 2013, compared with the 1.6 percent forecast issued three months ago.

“We expect the euro area economy to recover only very gradually,” ECB President Mario Draghi said.

He added that the eurozone’s economy was subject to downside risks stemming especially from the 17-nation bloc’s debt crisis and the tensions that has caused in a number of countries.

Draghi further noted that the ECB will launch a new program called “Outright Monetary Transactions”, to purchase the sovereign bonds of eurozone countries.

“As we said a month ago, we need to be in the position to safeguard the monetary policy transmission mechanism in all countries of the euro area,’’ ECB chief said.

Draghi added the ECB was acting “strictly within our mandate to maintain price stability over the medium term; we act independently in determining monetary policy; and the euro is irreversible.”

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