ECB survey sees lower inflation, higher GDP growth


FRANKFURT (Reuters) - Euro zone inflation may be lower than earlier thought in the coming years but economic growth and the drop in unemployment could exceed past projections, the European Central Bank's Survey of Professional Forecasters showed on Friday.


The ECB, which factors the survey into policy decisions, kept borrowing costs at record lows on Thursday, calling for patience and persistence in getting inflation back up to its target.


Still, suggestions that the drag on inflation is temporary and may be looked past, reinforced expectations that the bank is going to curb stimulus this autumn, easing off the accelerator even if easy monetary policy is likely to persist for years to come.


The survey, based on responses from 56 forecasters, sees inflation at 1.5 percent this year, 1.4 percent in 2018 and 1.6 percent in 2019, all 0.1 percentage point below previous projections made three months ago.


The longer-term expectation for five years out was unchanged at 1.8 percent, at or just below the ECB's target of inflation 'close to but below' 2 percent.

"To two decimal places, however, these revisions were actually much smaller (typically less than 0.05 p.p.) across rounding thresholds," the ECB said about the revisions.

The risks to the longer-term projection are tilted to the downside, the ECB said, a day after ECB President Mario Draghi argued that there were still no convincing signs of a pick-up in underlying inflation due to weak domestic cost pressures and subdued wage growth.

Core inflation, or prices excluding food and energy, was revised up to 1.1 percent this year from 1.0 percent but projections further out were left unchanged, with forecasters predicting 1.3 percent next year, 1.5 percent in 2019 and 1.7 percent over the longer term.

"Respondents who revised up their 2017 expectations tended to cite the improved growth outlook," the ECB added.

The ECB has struggled to explain an apparent conflict between accelerating growth and weak inflation.

The relatively fast drop in unemployment was expected to generate more wage pressures and thus inflation but changes in the structure of the labor market since the global financial crisis seem to be delaying wage inflation.

Indeed, the survey now sees GDP growth at 1.9 percent this year, above the 1.7 percent predicted three months ago, while unemployment forecasts were cut by 0.2-0.3 percentage point for all years.

(Reporting by Balazs Koranyi; Editing by Francesco Canepa and Hugh Lawson)

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