ECB cuts growth outlook

December 13, 2001 Posted: 1400 GMT

LONDON (CNN) -- The European Central Bank on Thursday cut its forecast for euro zone growth and warned the economy will remain weak well into next year.

But while the ECB said it expected growth to gradually return, it gave no hints that it was ready to cut interest rates to help speed up economic recovery.

The ECB is under pressure to cut rates again, with concerns that the 12-nation euro zone could follow Japan and the United States into recession. It has trimmed rates four times this year, compared to U.S. Federal Reserves 11 cuts to prop up a recovery in the world's biggest economy.

In its December bulletin, the ECB predicts growth of between 1.3 and 1.7 percent in 2001, down from its previous forecast of between 2.2 and 2.8 percent published in June.

For 2002, it expects growth of between 0.7 and 1.7 percent, compared with the previous forecast in the range of 2.1 and 3.1 percent. However, the ECB predicted growth of between 2.0 and 3.0 percent in 2003.

"Economic activity seems to have remained very subdued in the fourth quarter of 2001 as a results of the continued weakness in domestic and external demand and the still high level of overall uncertainty," the ECB said.

"However, these projected annual average growth rate must not be misinterpreted since they mask the expected recovery in the course of 2002."

The ECB bulletin also said the outlook for inflation has remained stable since June, as there are signs that price pressures will continue to ease, mainly due to lower oil and energy costs.

The twice-yearly economic projections are compiled by ECB staff and economists at euro zone central banks. They do not represents the views of ECB policymakers.

Inflation is the main focus of ECB policymakers. Last week, they decided to keep interest rates at unchanged as 3.24 percent – even thought inflation has fallen below the central bank's target of 2.0 percent.