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ECB sharply cuts inflation and growth forecasts

FRANKFURT (Reuters) - The European Central Bank slashed its forecasts on Thursday for growth and inflation over the next two years, saying the outlook had deteriorated since its last staff forecasts were published in September.

It forecast 2014 inflation at 0.5 percent, rising slightly to 0.7 percent next year and 1.3 percent in 2016.

Staff cut their prediction for economic output in the euro zone to 0.8 percent this year, 1.0 percent in 2015 and 1.5 percent in 2016.

In September, ECB staff had predicted that inflation would be 0.6 percent this year, then rise to 1.1 percent and 1.4 percent in 2015 and 2016 respectively.

It had also forecast in September that gross domestic product would grow by 0.9 percent this year and by 1.6 percent and 1.9 percent in 2015 and 2016 respectively.

By lowering its forecasts, which show how the ECB expects the economy to develop, the euro zone central bank will heighten expectations that it will take further steps to bolster the bloc's flagging economy.

ECB President Mario Draghi recently threw the door open for drastic measures to prevent growth and inflation from sliding further and expectations are rising that a move could come as soon as the first three months of next year.

(Reporting by John O'Donnell and Paul Carrel; Editing by Catherine Evans)