FRANKFURT, Sept 10 (Reuters) – The European Central Bank raised some of its growth projections on Thursday and also lifted its inflation outlook, suggesting that it expects a war-induced energy shock to dissipate only slowly.
Inflation soared past 3% this summer and is likely to stay high for some time, raising the risk that expensive energy will eventually lift the cost of other goods and services, forcing the ECB to tighten even further after two rate hikes this year.
Inflation is now seen averaging 2.5% next year, above the 2.3% seen in June while underlying inflation is seen at 2.6% in 2027, above the 2.5% forecast earlier.
But a relatively soft labour market limits the risk that workers will demand compensation for higher prices, setting off a hard-to-beat wage-price spiral.
The economy nevertheless appears more resilient to the energy price shock than many had predicted. Consumption, investment and industrial output are holding up well, indicating that firms and households are quickly adapting to a rapidly shifting environment.
The following are the ECB’s baseline projections for inflation and GDP growth. Its previous projections from June are in brackets.
2026 2027 2008
GDP Growth: 0.9% (0.8%) 1.4% (1.2%) 1.5% (1.5%)
Inflation: 3.0% (3.0%) 2.5% (2.3%) 2.1% (2.0%)
Core inflation 2.5% (2.5%) 2.6% (2.5%) 2.3% (2.2%)
(Reporting by Balazs Koranyi; Editing by Catherine Evans)
