The bank said it also expects the ECB to extend its quantitative easing, or bond-buying programme, through the end of 2017.

It said it expected the easing to start next month with a deposit rate cut to -0.5 percent from the current -0.3 percent - followed by a second package perhaps as early as June which will see another 20 basis points lopped off and an extension of QE.

In a note to clients, the bank's euro zone economist Greg Fuzesi said the driving factor is persistently weak inflation rather than a change to the growth outlook.

"This forecast change is motivated by two factors. First, we continue to think that inflation will rise towards the ECB's target more slowly than its staff expects. Second, the ECB will be more sensitive to this in an environment of persistent downside risk," he said.

(Reporting by Jamie McGeever; Editing by Mike Dolan)