The European Central Bank raised its euro area growth forecast for 2018 while keeping its inflation projections unchanged as it moved toward normalizing monetary policy by dropping its pledge to increase quantitative easing.
The ECB staff now expects economic growth in the euro area to reach 2.4% in 2018 but ease to 1.9% in 2019 and 1.7% in 2020. The central bank previously forecast 2018 growth at 2.3% in December 2017.
In the fourth quarter of 2017, real GDP rose by 0.6%, with domestic demand and net trade contributing to the growth, the bank said. "Real GDP growth is projected to remain robust in the first half of 2018, in line with very elevated levels of business and consumer sentiment."
The harmonized index for consumer prices, the bank's inflation gauge, is still expected to be 1.4% in 2018. However, the ECB staff revised down its inflation outlook for 2019 by 0.1 percentage point to 1.4% from 1.5%, rising to 1.7% in 2020. The central bank's inflation is below 2.0%.
"Although HICP energy inflation is expected to strengthen in the coming months, reflecting the recent increases in oil prices and some upward base effects, from the end of 2018 it should decrease sharply, falling to rates around zero in mid-2019," the bank said.
The ECB staff also expects employment to grow at a rate of 1.4% in 2018, 1.1% in 2019 and 0.8% in 2020, while it forecasts an unemployment rate of 8.3% in 2018, 7.7% in 2019 and 7.2% in 2020.
The central bank earlier today left its key rates unchanged.
