FRANKFURT (MNI) – The Eurozone economic recovery will continue over
the longer term, though the pace is expected to slow modestly next year,
the European Central Bank’s survey of professional forecasters showed on
Thursday.

Polled by the ECB between the 15th and the 20th of October, the 61
respondents have revised up their GDP forecasts “for all horizons,” with
the figures for 2010 and 2011 falling in the middle of the ECB’s own
staff forecasts published in September.

The aggregate 2010 GDP projection of forecasters was revised up to
+1.6%, an 0.5 percentage point increase from the figure published three
months ago, the ECB said. For 2011, the survey showed forecasters
expecting GDP growth to slow to +1.5% (+1.4% in the 3Q forecast) before
accelerating to +1.7% in 2012. In the longer term, the professional
forecasters have penciled in a growth rate of +1.8%, unchanged from
their previous forecasts.

The most recent ECB staff projections, to be updated next month,
point to economic growth ranging between 1.4% and 1.8% this year and
between 0.5% and 2.3% in 2011.

Nevertheless, risks “are still slightly tilted to the downside,
with uncertainty prevailing,” ECB President Jean-Claude Trichet warned
earlier this month.

The survey published today shows the balance of risks “on the
downside across all forecast horizons,” particularly for 2010.

According to respondents, “the main downside risks relate to weaker
growth in the United States and a slowdown in emerging economies,” the
ECB survey results showed. “Upside risks to growth mentioned include:
improved confidence, leading to a strengthening of domestic demand; a
recovery in the labour market; success of the planned fiscal
consolidation measures.”

Markit Economics’ October purchasing managers index (PMI) rebounded
from an eight-month low the previous month to end a string of three
consecutive declines.

According to the PMI report, all countries covered showed an
acceleration in output growth last month, except Greece, where activity
declined further in the face of the government’s stiff fiscal austerity
program.

“However, it is clear that the recovery has moved down a gear,”
Markit chief economist Chris Williamson said. “The pace of expansion has
eased markedly from the surging near double-digit annual pace seen
earlier in the year to a more modest 3% to 4%.”

The forecasters projected inflation to average +1.5% for both this
year and the next, below the ECB’s price stability target level of less
than but close to 2%. The forecasts three months ago had pointed to
consumer price inflation of +1.4% in 2010 and 1.5% in 2011.

Over a five-year horizon, the median inflation expectation was
+1.9%, down slightly from the +1.95% rate initially published, though
still in line with the ECB’s target.

ECB staff’s own projections on inflation, published in September,
foresaw a range of 1.5% to 1.7% for 2010 and 1.2% to 2.2% for 2011.
Consumer price inflation in the Eurozone hit a 23-month high of +1.9%
y/y in October, Eurostat reported, citing preliminary estimates.

Trichet said earlier this month that inflation expectations “remain
firmly anchored.” However, he warned that risks to price developments,
relating especially to commodity prices, “are slightly tilted to the
upside,” suggesting that ECB staff inflation projections could be
revised upwards in December.

Still, at least part of the risk would be offset by the strong
euro, which hit a near 10-month high against the dollar earlier this
month to settle at nearly 7% above its average three months ago —
although some of the shine has since come off the single currency in the
face of re-emerging sovereign debt worries.

Unemployment expectations in the ECB survey were unrevised at 10.1%
for 2010. For next year, the jobless rate is expected to slip to an
average of 10.0%, down 0.2 percentage point from the last survey, and
reach 9.6% by 2012. Over the longer term, unemployment should reach
8.3%, down from the 8.4% rate reported in August.

However, risks to both the short and medium term were assessed to
“the upside,” the bulletin said.

In September, the Eurozone unemployment rate hit a record 10.1%,
while the number of jobless rose at its fastest pace since April. With
the economic recovery losing steam in the second half of this year, and
austerity measures likely to soften growth further, analysts expect
additional job losses in the months ahead.

— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —

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