–Adds Quotes from Draghi in Fifth and Ninth Paragraphs.
–Adds Economic Assumptions in Last Two Paragraphs

PARIS (MNI) – The European Central Bank staff has cut its forecasts
for economic growth in the Eurozone because of the debt crisis and
expects inflation to fall below 2% next year, ECB President Mario Draghi
said Thursday.

The revisions suggest that the ECB could further lower its rates
after today’s 25-basis point cut in the main refinancing rate to 1.0%.

Draghi told journalists at his monthly press conference that the
central bank’s staff forecasters now expect the Eurozone economy to grow
by 1.5% to 1.7% this year, for a midpoint of 1.6%, and by -0.4%
to 1.0% in 2012, which gives a feeble midpoint of +0.3%.

The 2011 forecast is virtually unchanged from the one issued in
September, which also produced a midpoint of 1.6%. But the new forecast
for 2012 is sharply below the 1.3% midpoint forecast for 2012 in the
previous projections. For 2013, the ECB staff projected economic growth
of 0.3% to 2.3%, Draghi said.

“The intensified financial market tensions are continuing to dampen
economic activity in the euro area and the outlook remains subject to
high uncertainty and substantial downside risks,” Draghi said in his
opening statement.

The ECB staff put HICP inflation in a range of 2.6% to 2.8% this
year, for a midpoint of 2.7%, up slightly from 2.6% in the September
forecasts. For 2012, the ECB staff sees HICP between +1.5% and +2.5%,
giving a midpoint of 2.0% — up from 1.7% in the last forecasts and,
significantly, slightly above the ECB’s definition of price stability.
Average inflation in 2013 is expected between 0.8% and 2.2%, Draghi
said.

Draghi said inflation was likely to remain above 2% for several
months before dropping below 2% by the end of 2012, as economic growth
in the Eurozone weakens.

“In an environment of weaker growth in the euro area and globally,
underlying cost, wage and price pressures in the euro area should also
remain modest,” Draghi said.

The ECB staff forecasts assume that short-term interest rates will
basically hold steady while longer-term rates rise. Eurozone short-term
rates are expected to average 1.4% in 2011, decline 1.2% in 2012 and
rise back 1.4% in 2013. Average 10-year bond yields are expected to be
4.4% in 2011 before rising to 5.3% in 2012, according to the forecasts.

The forecasts assume that the euro will weaken from $1.40 in 2011
to $1.36 in 2012 and 2013 and that Brent crude prices will ease from an
average of $111.50 this year to $109.40 in 2012 and $104 in 2013.

The following table contains the ECB’s new forecasts compared with
the ones issued in September.

New Projections September Projections
Range Midpoint Range Midpoint
————————————————————————-
2011 GDP +1.5% to +1.7% +1.6% +1.4% to +1.8% +1.6%
2012 GDP -0.4% to +1.0% +0.3% +0.4% to +2.2% +1.3%
2013 GDP +0.3% to +2.3%
2011 HICP +2.6% to +2.8% +2.7% +2.5% to +2.7% +2.6%
2012 HICP +1.5% to +2.5% +2.0% +1.2% to +2.2% +1.7%
2013 HICP +0.8% to +2.2% +1.5%

–Paris newsroom, +331-42-71-55-40; paris@marketnews.com

[TOPICS: M$$EC$,M$X$$$,MT$$$$,MGX$$$,M$$CR$]