By Deepti Govind
(Reuters) - It is lackluster demand that is holding back the euro zone economy, not availability of credit, an overwhelming majority of forecasters polled by Reuters said, adding that the European Central Bank won't cut negative deposit rate any further.
The latest survey results underscored the view that there are limits to how much more monetary policy can do after the ECB surprised in March with a volley of interest rate cuts, additional monthly bond purchases and more cheap loans for banks designed as an incentive for them to lend more.
"We're getting to the point now where people are beginning to question the cost-benefit analysis of ever-more aggressive monetary policy," said Colin Bermingham, European economist at BNP Paribas (PA:BNPP).
Results from the survey, taken April 6-13, underscored a wider theme brewing: developed economies that are able to should now consider fiscal policy for future stimulus. Most respondents said the ECB won't cut its -0.40 percent deposit rate again.
Still, with a debate now raging on how useful negative rates are as a policy tool, most said the ECB's negative rate deposit rate will probably do more good than harm.
It is still early days for the global negative rate experiment, pursued by policymakers grappling with low inflation and even the threat of deflation.
Central banks in Japan, Sweden and Switzerland have all cut key interest rates below zero, so far with mixed results, and in the case of Japan, triggering an unwanted 10 percent rally in the yen since the policy was announced by surprise in January.
A slim minority in the Reuters poll highlighted the risks of the ECB's negative rate policy.
"We detect a growing sense of frustration with the 'lower for longer' approach to monetary policy, and not before time. Equity investors have favored those economies that have begun the normalization process, and punished those that have dallied with negative rates," said Fathom Consulting economist Florian Baier.
The euro zone economy is predicted to expand just 0.4 percent in each quarter until Q2 2017 and average 1.5 percent this year and 1.6 percent next -- an outlook that has shown no signs of improvement this year.
Those predictions also match the International Monetary Fund's latest projections for 2016 and 2017.
Inflation is not expected to pick up either, averaging 0.3 percent this year and 1.4 percent next, unchanged from last month's medians.
And despite swathes of ECB stimulus, aimed at getting inflation back up to its target of around 2 percent, an increasing number of respondents now predict deflation in 2016.
But not all economists are downbeat.
"Euro zone growth has slowed recently as external demand has weakened, however domestic demand has steadily been improving. The impact of fiscal policy is now on the whole neutral, and household spending is recovering as unemployment continues to fall," said Azad Zangana, senior economist at Schroders (LON:SDR).
IRELAND'S LIGHT FADING?
Growth predictions for individual economies within the euro zone were also mostly trimmed in this month's poll.
Growth in Germany's economy is expected to slow this year to 1.5 percent from 1.7 percent last year. Inflation is also expected to remain low at 0.4 percent in 2016.
The second largest economy, France, will grow 1.2 percent this year, missing the government's 1.5 percent prediction.
Economists also cast doubt over whether the government would keep to its fiscal targets, forecasting it would fail to cut its public deficit to less than three percent of economic output next year as Paris has promised its EU partners.
Italy, which emerged from a three-year recession at the start of 2015, is forecast to continue to post listless economic growth of 1.0 percent this year and 1.2 percent in 2017.
Spain's economy, a leading light for revival in the euro zone over the past year, is expected to grow 2.7 percent this year and 2.2 percent next, a slight downgrade from the previous poll.
Ireland, which has had some of the fastest growth rates across the bloc recently, is expected to do much better than earlier estimates with a 5 percent increase in GDP this year but slow to 3.8 percent next.
(For other stories from the Reuters global economic poll:)
(Polling and analysis by Shrutee Sarkar and Krishna Eluri in Bengaluru; Additional polling by Viviana Venturi in Milan and Cirsten Pahlke in Berlin; Additional reporting by Leigh Thomas in Paris, Gavin Jones in Rome and Michael Nienabar in Berlin; Editing by Ross Finley and Jeremy Gaunt)