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Euro zone faces 15 pct chance of deflation - economists:Reuters Poll
March 12, 2014 / 2:25 PM / 4 years ago

Euro zone faces 15 pct chance of deflation - economists:Reuters Poll

* For poll data see

* Forecasters peg risk of deflation at 15 pct

* 18 of 45 economists disagree with ECB’s steady policy

By Deepti Govind

BANGALORE, March 12 (Reuters) - A significant number of economists have doubts about the European Central Bank’s view that deflation is not a threat and that the recovery will take hold without any more action, a Reuters poll showed, and they say more stimulus is needed.

The ECB refrained from cutting interest rates or implementing any additional stimulus measures at its meeting last week, saying the recovery was on track and needed no extra push for now.

While 27 of 45 economists supported that view, 18 in Wednesday’s poll, including 11 from European banks, said they disagreed with the ECB’s stance, arguing the bank has to take further steps now to support the economy.

Euro zone inflation has been stuck at 0.8 percent since December, well below the ECB’s preferred target of below but close to 2 percent.

While the poll found inflation will steadily pick up over the next two years, there is also a 15 percent chance the euro zone economy might slip into deflation.

“It is not a negligible risk. Further appreciation of the euro will be an enormous factor playing against the growth recovery and adding to the risk of deflation,” said Frederic Pretet, inflation strategist at Scotiabank.

International Monetary Fund managing director Christine Lagarde said this month the chances of deflation were about 15-20 percent, roughly in line with the poll.

Pretet pencils in a 20 percent chance of deflation. He said the ECB should have cut the deposit rate to below zero last week, effectively charging banks to park cash at the ECB.

Most economists polled said that outright quantitative easing - which is very unlikely to happen - was not the appropriate path to take.

But a slim majority of economists polled recommended ending the sterilisation of bond purchases under the Securities Markets Programme, a step many had thought the central bank would take at its last meeting.

Economists left their growth and inflation forecasts for the next two years largely unchanged from a poll conducted a month ago.

They expect growth of 1.1 percent in 2014 and 1.4 percent in 2015. That is roughly in line with the ECB’s staff projections of 1.2 percent this year and 1.5 percent next year.

Similarly the consensus for inflation this year was 1.0 percent this year and 1.4 percent next year, again mostly in line with the ECB’s forecast of 1.0 percent and 1.3 percent.

For other stories from the poll see Polling and analysis by Diptarka Roy and Ishaan Gera; Editing by Hugh Lawson

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