March 12, 2020 / 1:59 PM / 24 days ago

ECB signals growth slowdown as Lagarde doesn't rule out recession

FRANKFURT (Reuters) - The European Central Bank cut its growth forecasts for this year and next on Thursday, and its president declined to rule out the currency bloc slipping into recession as the coronavirus epidemic weighs heavily on economic activity.

Christine Lagarde said the ECB now expected the euro zone economy to grow by 0.8% this year, a significant drop from the expansion of 1.1% it had forecast in December.

Asked at a news conference if a recession beckoned, she said the outturn for the economy would “clearly depend on the speed and strength” of the collective response to the epidemic, which had left the global economy “facing a major shock”.

Foremost among those was a coordinated response from governments on the fiscal front, she said.

The lowered growth outlook for 2020 was part of a series of new estimates that the ECB collated before the outbreak hit Europe. They were probably already out of date, Lagarde said.

The bank forecast GDP growth of 1.3% in 2021 and 1.4% in 2022, compared to an expansion of 1.4% for each year projected in December.

Lagarde said risks to the outlook were “clearly on the downside”, and the coronavirus had added a “substantial” negative element.

The ECB left its inflation projections unchanged at 1.1%, 1.4% and 1.6%.

The cut-off date for the ECB’s economic forecasts is usually three weeks before they are presented to the policy-making Governing Council.

The following are the ECB staff’s new projections for inflation and GDP growth, with December forecasts in brackets.

The ECB updates projections once a quarter.

Reporting by Francesco Canepa and John Stonestreet; Editing by Catherine Evans

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