Mortgage rates to stay low as the eurozone flounders
Slowdown Tracker and standard variable loan-holders to benefit Brexit woes No deal will pitch Britain into long-lasting recession
HUNDREDS of thousands of mortgage-holders, as well as small businesses, are set for a reprieve on anticipated higher repayments.
A slow-down in the economies of countries in the eurozone means an interest rate rise next year is now less likely.
Adding to the economic concerns, a no-deal Brexit would be likely to tip Britain into a recession that could last as long as the downturn that followed the global financial crisis, ratings agency Standard & Poor’s has warned.
That’s bad news for Ireland, a key trading partner.
The European Central Bank (ECB) has signalled September 2019 as the likely start of rate increases.
Raising rates would be a signal of strength for the economy, but would hit borrowers here in the pocket.
The more than 300,000 Irish households with a tracker mortgage are among those who benefit most from the current low rates.
Their mortgage rate can be increased when the official ECB rate goes up, so the longer it is delayed the better for home-owners. Borrowers with a standard variable rate loan are also at risk of an increase, if rates go up.
The eurozone economy grew at its slowest pace in more than four years in the three months to the end of September, dragged down by near-stagnation in Italy and likely a weaker performance in Germany.
The euro area grew 1.7pc from a year earlier, according to the latest official data, far slower than expected.
Last year’s growth of 2.7pc had been the fastest expansion in a decade and sparked hopes Europe was set for a sustained upturn.
Now a slowdown casts doubt over whether the ECB can begin to normalise super-low interest rates at all before the next downturn.
THE eurozone economy expanded at its slowest pace in more than four years as the rate of growth in the third quarter halved from the pace of the first half of the year to just 0.2pc, dragged down by near-stagnation in Italy and likely a weaker performance in Germany.
According to data released yesterday, the euro area grew 1.7pc from a year earlier, far slower than expected.
It posted growth of 2.7pc for the whole of 2017, its fastest expansion in the decade since the financial crisis, which had sparked hopes Europe was set for a sustained upturn.
The weak growth numbers released highlighted the stark difference between Europe’s slow recovery from the 2007 financial crisis and that of the United States, where the latest data showed the world’s largest economy grew 3.5pc in the third quarter in what looks to be a record-setting expansion in terms of length.
Europe’s poor performance also cast doubt over whether the European Central Bank would manage to raise interest rates at all before the next downturn. That’s in contrast to the Federal Reserve, which has raised interest rates eight times in the past three years and will have more room to stimulate the economy with cuts should a downturn occur.
“The divergence in economic performance within the euro area is also increasing, limiting the ECB’s options,” said Shweta Singh, MD of Global Macroeconomics at advisory firm TS Lombard in London.
“The central bank will likely downgrade its growth assessment in December and adopt a more dovish end to its quantitative-easing programme than previously expected.”
The euro area’s overall performance was hit by growth of just 0.02pc in Italy in the quarter. Italy has gone head to head with Brussels over its budget plans and will face further scrutiny after the latest growth numbers. These look set to prompt more questions over its forecasts as it needs growth of 0.5pc each quarter versus the prior quarter to hit its budget targets.
While the ongoing Italian and Brexit dramas dominate headlines and markets, a greater risk comes from a slowdown in the pace of growth in the Chinese economy.
A key export market for the bloc – especially for Germany, Europe’s largest economy – it is much more exposed to a global economic slowdown than the United States as it accounts for 15.8pc of world exports, higher than the 11.5pc of the US.
China’s continued growth through the economic crisis while others fell into recession kept the world economy afloat.
It represented more than 40pc of the rise in world gross domestic product over the period.
Volkswagen, for example, sells almost one in three of the cars it makes in China.
Adding to Europe’s woes, a key measure of economic sentiment among managers and consumers dropped for the 10th consecutive month in October, indicating that the slowdown may gather pace.
‘The central bank will likely adopt a more dovish end to its QE programme than was previously expected’