Eurozone inflation outlook weakens

The vast majority of more than 60 economists surveyed this week, however, do not expect the European Central Bank to cut interest rates – either its main refinancing rate or deposit rate – to new record lows.

The poll also suggested the eurozone economy will return to only modest growth in the second half of this year after stagnating in three months from May to July.

The biggest change came in the outlook for inflation, which has declined markedly over the last few months, well under the ECB’s preferred target of close to, but just below 2 per cent.

The poll showed inflation will average 1.4 per cent this quarter and next, and slip further to just 1.3 per cent in the final three months of the year.

Overall, the median inflation outlook is around 30 basis points lower compared with April’s poll.

But only a little more than a quarter of economists in the poll expect the ECB will cut its main refinancing rate again, to below the current 0.5 per cent.

“It probably would not really help that much, due to the ECB’s transmission problem,” said Petr Zemcik, director of European economics at Moody’s Analytics, referring to the spreading of benefits equally throughout the zone.

“The policy rate is low, but loan interest rates in Spain and Italy are still high. So lowering the policy rate with the intention of boosting output is probably not going to work anyway.”