The European Central Bank has cut its 2018 euro zone growth forecast from 2.4% to 2.1%, blaming the threats of rising protectionism and global trade tensions for clouding the outlook.
"Uncertainties related to global factors, including the threat of increased protectionism, have become more prominent, the risk of persistent heightened financial market volatility warrants monitoring," ECB chief Mario Draghi said.
The more downbeat assessment comes after the euro area got off to a shaky start in 2018 with growth slowing to 0.4% in the first quarter, compared with 0.7% in the previous three months.
Markets have been rattled in recent weeks by a mounting trade dispute with the US, which has raised the prospect of a tit-for-trade transatlantic trade war.
The spending plans of Italy's new populist government have also revived concerns over the country's huge debt pile.
Despite the "increasing uncertainties", Draghi said the bank's governing council remained confident in "the underlying strength of the euro area economy" - allowing it to begin phasing out its crisis-era stimulus measures.
The bank left its growth forecasts for 2019 and 2020 unchanged compared with the last estimates released in March, at 1.9% and 1.7% respectively.
Turning to inflation, Draghi said the bank's governing council was convinced that price growth was on track towards the bank's target of just under 2% inflation.
The bank raised its inflation forecasts for 2018 and 2019 to 1.7% from 1.4%, which Draghi said was mainly down to "higher oil prices". For 2020, the inflation outlook remained unchanged at 1.7%.
Earlier, the ECB said it will end its unprecedented bond purchase scheme by the close of the year, taking its biggest step in dismantling crisis-era stimulus a decade after the start of the euro zone's economic downturn.
Signalling that the move would not mean rapid policy tightening in the coming months, the ECB said interest rates would stay at record lows at least until the summer of 2019, suggesting protracted support for the economy, even if at a lower level.
In a statement, the ECB said its main refinancing rate would remain at 0%, while the rate on the marginal lending facility would stay at 0.25% and the rate on deposits at -0.4%, meaning banks pay to park money with the ECB.
Markets had been pricing in a 10 basis point hike in the ECB's benchmark deposit rate by June 2019.
Though full policy normalisation will take years, investors are braced for the end of easy money from the world's top central banks.
A hawkish US Federal Reserve dropped a crisis-era stimulus pledge last night while the ECB had already begun rolling back support after a five-year run of economic growth.
"The monthly pace of the net asset purchases will be reduced to €15 billion until the end of December 2018 and net purchases will then end," the ECB said in a statement after policymakers met in the Latvian capital Riga.
The decision affirms market expectations for the bond purchases to conclude by year-end after a short period of tapering, and indicates that interest rates will once again become the bank's primary policy tool.
"The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path," the ECB said.
The biggest complication for the process of normalisation could be a murky economic outlook, muddied by a developing trade war with the US, a populist challenge from Italy's new government and softening export demand.
But ECB policymakers have long argued that their mandate is to bring inflation back to target, not to prop up growth or fight off market turbulence in any particular country.
While euro zone inflation has remained weak, higher oil prices, increasingly evident wage pressures and record employment suggest that prices will be moving up in the coming years, even if more slowly than the ECB had originally hoped.
ECB chief economist Peter Praet, a Draghi ally and one of the most dovish members of the rate-setting Governing Council, recently argued that progress has been made on the inflation criteria, a strong hint that stimulus would be pared back.
The euro's 5% fall against the dollar since April is also helping the ECB as the weaker currency is increasing the cost of imports and boosting inflation.
While a rebound is likely, the US Fed's tightening stance will limit the potential for a big rise in the euro.
The ECB shifts its policy meeting from Frankfurt to a euro zone capital once a year.
Today's gathering is being held in Riga, a sensitive issue for the bank as Latvia is unable to vote in policy meetings due to a legal dispute.
Latvian authorities detained central bank chief Ilmars Rimsevics in February on accusations of having solicited a bribe.
He has has been barred by Latvian authorities from working as governor, preventing him from taking part in ECB meetings, including interest rate decisions.
The ECB took the Lavtian government to the European Courtover the case, accusing Riga of illegally removing Rimsevics as he has not been convicted any crime.
Rimsevics has denied any wrongdoing.