The coronavirus pandemic will likely lead to a period of very low inflation in the eurozone, forecasters for the European Central Bank said, rejecting suggestions that supply-chain bottlenecks and aggressive money-printing by central banks could push up consumer prices.
The report comes days after the ECB unveiled a new package of stimulus measures, including ultra cheap long-term loans for banks, aimed at supporting businesses and households impacted by the pandemic.
Despite such measures, eurozone inflation is likely to fall to 0.4% this year, before rebounding to 1.2% next year and 1.4% in 2022, according to the ECB report, which surveyed fifty-seven professional economists. The ECB aims to keep inflation just below 2% over the medium term.
Some economists have argued that the pandemic could ultimately lead to higher inflation, as supplies of goods and services are interrupted, and central banks flood markets with newly created money.
But the ECB forecasters said that the impact of weak demand, including for oil, would outweigh any disruption to global supplies.
The forecasters said they expect the eurozone economy to shrink by 5.5% this year before rebounding 4.3% next year. In the most recent survey three month ago, they had forecast growth of 1.1% this year and 1.2% next year.
By 2024, the eurozone economy will still be 3% smaller than the economists had expected it to be three months ago, they said.
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