ECB cuts growth forecasts

@CNNMoney September 8, 2011: 11:08 AM ET
European Central Bank President Jean-Claude Trichet.

European Central Bank President Jean-Claude Trichet.

NEW YORK (CNNMoney) -- The European Central Bank cut its economic growth forecast and said there is a risk that growth will slow to a near standstill next year, but stopped short of warning of a new recession.

ECB President Jean-Claude Trichet said at a press conference following the bank's regular meeting that the central bank's forecast is now for growth of only 1.4% and 1.8% in 2011, and between 0.4% and 2.2% in 2012.

Both are down from earlier forecasts, and the risks to that gloomier outlook are now to the downside, rather than balanced as the ECB had previously said.

When asked if that meant that the 17 nations of the eurozone are at risk of falling into recession, Trichet dodged the question, saying it is difficult to make forecasts in the current situation.

"There is an enormous level of uncertainty," he said, adding that the uncertainty extends beyond Europe to other major economies around the globe.

Europe: 5 key issues

The lowered forecast comes amid growing fears of a double dip recession in the United States. The U.S. Federal Reserve has also cut its growth forecast, although its estimate of 2012 growth of between 3.3% and 3.7% is downright bullish by comparison to the ECB's latest outlook.

Trichet also said the ECB staff now forecasts less risk of price increases going forward and expect the inflation rate to fall below the 2% target set by the central bank by next year.

That is important because the ECB's sole mandate is for price stability, rather than a dual mandate for stable prices and full employments as is the case of the U.S. Federal Reserve. Only two months ago, the ECB raised interest rates despite weakness sparked by inflationary pressures.

As expected, the ECB left rates unchanged Thursday, and when asked if it considered cutting rates in response to the new forecasts, Trichet would only say the decision to leave rates unchanged was unanimous.

The cloud of worry hanging over Europe include concerns about the risks of default of sovereign debt from several troubled European economies and fears that they are at risk of a default that would shake the banking system across the continent.

Trichet repeated earlier statements that it is important that those countries -- Greece, Portugal, Ireland, as well as Italy and Spain -- move ahead with budget cuts. He said it is also important for the stronger economies in Europe to stand behind their commitments to set up a bailout fund for troubled sovereign debt.

"This is our working assumption and also our goal," he said.

The ECB has been buying up some of the sovereign debt from troubled countries in the past month as it tried to stabilize the banking system while the broader bailout fund is set-up.

Trichet said the intention was for the fund to make the bond purchases in the future, but would not comment on the ECB's own plans for future purchases. To top of page

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