ECB cuts growth outlook, holds rates

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SummaryThe euro zone economy is likely to shrink next year as it has in 2012, the European Central Bank predicted on Thursday, sharply downgrading its outlook after holding interest rates at a record low 0.75%.

The euro zone economy is likely to shrink next year as it has in 2012, the European Central Bank predicted on Thursday, sharply downgrading its outlook after holding interest rates at a record low 0.75%. The bank’s new staff projections put gross domestic product in a range of falling by 0.9% to growing by just 0.3% next year,suggesting contraction is far more likely than not. ECB President Mario Draghi said downside risks prevailed. In September, the ECB’s staff had pencilled in a significantly higher range of -0.4 to +1.4%for the euro area economy. “Economic weakness in the euro zone is expected to extend into next year,” Draghi told a news conference after the central bank’s monthly policy meeting. “Later in 2013, economic activity should gradually recover as global demand strengthens and our accommodative monetary policy stance and significantly improved financial market confidence work their way through the economy.” The Governing Council’s decision to leave its main interest rate unchanged matched economists' expectations in a Reuters poll.

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