Eurozone inflation will be weaker than previously expected this year and next, an updated survey for the European Central Bank indicated on Thursday, darkening the eurozone's economic outlook.
The quarterly Survey of Professional Forecasters (SPF) also suggested that this year's eurozone growth would be weaker than previously expected, adding to the bloc's woes after the German economy shrank in the second quarter and France stagnated.
The survey raises fresh questions about the ECB's threshold for embarking on a policy of quantitative easing (QE) — essentially, printing money to buy assets.
A Reuters poll of economists conducted on Aug. 7-12 pointed to a one-in-three chance of the ECB embarking on such an asset purchase program in 2015.
Last week, ECB President Mario Draghi told his monthly news conference that the bank's policymaking Governing Council was "unanimous in its commitment" to use measures including QE if its medium-term outlook for inflation were to change.
Draghi also cited "heightened geopolitical risks" related to the impact on the eurozone economy from the Ukraine crisis.
Deutsche Bank has cut its 2015 inflation forecast for the 18-member single currency zone to 1.1 percent from 1.2 percent on the expectation of western European food manufacturers offloading excess output in the euro area as a result of a Russian ban on importing their produce.
However, some European officials expect that any impact from the Russia sanctions might show up in a more muted rebound, rather than a fall, in already weak food prices.
The ECB's third-quarter SPF showed a drop in the inflation forecast for this year to 0.7 percent from 0.9 percent previously, and a cut in the 2015 projection to 1.2 percent from 1.3 percent.
The ECB targets inflation of just below 2 percent over the medium term but the annual rate is running at just 0.4 percent, raising concerns that some countries could see deflation.
The reasons for the downward revisions cited in the survey were "lower than expected actual inflation outcomes, the general disinflationary environment and an ongoing lagged impact of previous exchange rate and commodity price developments, as well as a slightly softer real economic outlook," the ECB said.
Some countries on the eurozone periphery, such as Greece, are experiencing deflation as they lower wages and costs to make their economies more competitive. Italy also flirted with deflation in July, and Spain experienced price falls.
The forecasters' inflation projection for 2016 was, however, unchanged at 1.5 percent. The longer-term forecast of 1.9 percent was up slightly from the 1.8 percent forecast in the second quarter.
The forecasters trimmed their growth forecast for this year to 1.0 percent from 1.1 percent. Martin Lueck, European economist at UBS, said the revisions were not large enough to push the ECB into QE.
"This is all still within the limits where markets won't expect further action from the ECB," he said.
Before embarking on any potential QE plan, the ECB is focused first on assessing the impact of a new program of targeted long-term loans that it announced in June, which it will offer banks from next month.
"QE is a very Anglo-Saxon argument. In the eurozone, QE would mainly have an impact via the exchange rate," said Lueck.
"Low interest rates are useless as long as they do not reach the real economy. So the impact of QE would be questionable in the eurozone," he added.
"And as the name says, the ECB would have to spend a lot of money. Anything less than a trillion would be nonsense and would leave markets completely unimpressed. QE is a topic that the ECB tries to avoid for very good reasons."
Instead, the ECB hopes to stimulate lending with the so-called TLTROs (targeted long-term refinancing operations), to pep up investment in the flagging eurozone economy.
The ECB launches the first of the TLTROs on Sept. 18.
At its next policy meeting on Sept. 4, the ECB will release updated forecasts from its staff.
ECB staff forecasts published in June pointed to eurozone inflation of 0.7 percent this year, picking up to 1.1 percent in 2015 and 1.4 percent in 2016. In the final quarter of 2016, the staff forecasters foresaw inflation of 1.5 percent.
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