Eurozone Growth Seen Higher

By Todd Buell 

        FRANKFURT--A day after Mario Draghi said growth is firming, the ECB got more good news. Outside forecasters said on Thursday that low oil prices and a weaker euro would lift eurozone output at a faster rate than estimated three months ago. In a separate report, Germany's leading economic institutes raised their growth forecasts for the eurozone's largest economy.
        Analysts also expect inflation to reach lower levels this year than previously forecast, before gradually picking up in response to ECB policy measures and exchange rate moves.
        Forecasters attributed the upward growth revision to low oil prices and the weak euro which would help exports. The ECB's asset purchases should also "have an effect, both via the exchange rate...and by keeping interest rates low and thus supporting investment."
        The growth outlook underscores comments ECB President Mario Draghi made in his regular news conference Wednesday. "The euro area economy has gained further momentum since the end of 2014," said Mr. Draghi. "We expect the economic recovery to broaden and strengthen gradually."
        The forecasters revised their growth outlook for eurozone GDP in 2015 to 1.4%, from 1.1% previously, and to 1.7% in 2016, compared with 1.5% predicted in January. For 2017, the analysts forecast 1.8% growth, compared with a previous estimate of 1.7%, according to the ECB report.
        In a separate report, leading German economic institutes raised their outlook for Europe's largest economy, for this year and next, citing lower oil prices and the weak euro. The institutes said that Europe's largest economy would grow 2.1% this year and 1.8% in 2016. Back in October, the group forecast 1.2% growth for this year. "The German economy is in a strong upswing," the institutes said.
        The European Central Bank's Survey of Professional of Forecasters, a quarterly poll of analysts not representing the views of ECB staff, said that inflation in the 19-country currency bloc would only be 0.1% this year, a reduction of 0.2 percentage point compared with the forecast made in January.
        Inflation, however, is due to pick up more speed in future years, the forecasters said. They now see inflation next year at 1.2%, compared with the 1.1% expected in January, while for 2017 they forecast an inflation rate of 1.6%, compared with a previous projection of 1.5%.
        "Respondents reported that the downward revision for 2015 mainly reflected lower oil prices, whereas monetary policy measures and exchange rate developments have resulted in upward revisions for 2016 and 2017," said the ECB.
        Over a longer-term horizon, inflation is seen at 1.8%, matching January's estimate. However, when taken out to a second decimal point, the longer-term expectation is slightly higher now than previously, coming in at 1.84% versus 1.77% seen in January.
        The rise in inflation expectations will come as encouraging news for the central bank, suggesting that its commitment to pump over EUR1 trillion ($1.1 trillion) into the eurozone economy until next September is convincing firms and households that prices will start to rise soon.
        The most recent data showed inflation at minus 0.1% in annual terms in March, its fourth straight month in negative territory. The ECB targets inflation at just below 2% over the medium term.
        Write to Todd Buell at todd.buell@wsj.com
        (END) Dow Jones Newswires

        April 16, 2015 05:50 ET (09:50 GMT)

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