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ECB sees smaller pandemic recession, slow inflation recovery

FILE PHOTO: European Central Bank (ECB) President Christine Lagarde gestures as she addresses a news conference on the outcome of the meeting of the Governing Council, in Frankfurt, Germany, March 12, 2020. REUTERS/Kai Pfaffenbach

FRANKFURT (Reuters) - The European Central Bank expects the euro zone to suffer a smaller recession this year than earlier feared but inflation is still likely to undershoot its target for years to come, its updated economic projections showed on Thursday.

In what it describes as the baseline scenario, the ECB expects GDP to shrink by 8.0 percent this year, an improvement on the 8.7% contraction it expected in June, ECB President Christine Lagarde said.

But the recovery is also likely to be slower, with 2021 growth now seen at 5.0%, slightly below the 5.2% projected three months earlier.

The balance of risk to the economy remains skewed to the downside following the coronavirus pandemic, Lagarde said.

The ECB left its inflation projections almost unchanged, with an increase of 0.3% seen this year, rising to 1.0% in 2021 -- slightly more than it foresaw in June -- and 1.3% in 2022.

Reporting by Balazs Koranyi; Editing by Catherine Evans

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