European Central Bank council member Yves Mersch said risks to the economic outlook in the euro area are on the downside.
“Important downward risks remain for the euro zone’s economic outlook in a context of increased uncertainty,” Luxembourg’s central bank, which Mersch heads, said in a quarterly report published today. “The downward risks are linked to a new intensification of tensions on financial markets in the euro zone and to their potential repercussions on the region’s real economy.”
A gradual economic recovery can be expected in the course of 2012, supported by “very low interest rate levels in the short-term and by all the measures adopted to support the functioning of the financial sector,” the report said. Inflation should fall below 2 percent next year and “risks to the outlook for medium-term price evolution are globally balanced,” it said.
Upside inflation risks relate to increases in indirect taxes and administered prices as governments seek to reduce budget deficits. “The main downward risks are linked to the repercussions of weaker-than-expected growth in the euro zone and in the world,” the report said.