The European Central Bank will revise up its growth and inflation forecasts next week and keep interest rates unchanged as confidence among entrepreneurs and investors improves, Commerzbank AG predicts.
“The ECB repeatedly pointed out that financial-market confidence has risen sharply, which is one of the reasons why economic indicators have on average outperformed consensus expectations since the December projections,” Frankfurt-based economist Michael Schubert wrote in a research note published today. “Against this backdrop, we expect that the ECB experts will raise their forecasts slightly, despite the euro’s appreciation.”
The ECB will lift its growth forecast for 2013 to minus 0.1 percent from minus 0.3 percent and predict inflation of 1.8 percent, up from a December projection of 1.6 percent, Commerzbank said. Policy makers will leave 2014 forecasts for growth and inflation unchanged at 1.2 percent and 1.4 percent respectively, according to the note. ECB President Mario Draghi will unveil the new projections on March 7.
The euro gained 11 percent against major trading partners in the six months through January, sparking a debate about deflation risks and the possibility of lower interest rates. The single currency has dropped 3 percent since Draghi said last month that the appreciation poses a downside risk for price stability.
Although the euro’s recent decline “should have no impact on the projections, as only data through to mid-February are taken into account, the ECB’s decision ought to be influenced by the weakening euro,” Schubert said. That makes it “even more likely that the ECB will leave key rates unchanged at the upcoming meeting,” he said.
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