Eyes on ECB to reverse eurozone slowdown

FRANKFURT AM MAIN: The European Central Bank is poised to offer yesterday a glimpse of plans to halt a eurozone slowdown, analysts say, as the Frankfurt institution is almost certain to downgrade growth and inflation forecasts.

Just three months after ending a trillion-euro stimulus for the bloc, the ECB is under renewed pressure to offer ways to reignite the eurozone’s sputtering engine.

A gaggle of international organisations including the European Commission and the IMF have already lowered their outlooks for the 19-nation bloc after geopolitical uncertainty, stuttering output in emerging markets and trade conflicts helped put the brakes on expansion in 2018.

On Wednesday it was the turn of rich-country club the OECD to issue one of the gloomiest eurozone predictions yet, expecting growth to reach just one per cent.

Powerhouse Germany and debtburdened Italy came off worst in the revision due to their “relatively high exposures to the global trade slowdown,” the Paris-based organisation said.

ECB staff are unlikely to be so pessimistic, with most analysts expecting a cut of 0.2 to 0.3 points to its December projection of 1.7 per cent growth in 2019.

“Any revision which does not go lower than the current consensus of 1.4 per cent is simply proof of the ECB’s sense of reality and no reason to panic,” ING DiBa bank economist Carsten Brzeski said.

Future growth is difficult to judge for now as “the eurozone still wobbles between decent domestic demand and increased external risks,” he added.

Both ‘soft’ indicators such as business confidence and ‘hard’ data like industrial production have fallen in recent months in the single currency area.

Trade conflicts between Washington, Brussels and Beijing, slowing growth in important export markets like China and looming uncertainty over Britain’s withdrawal from the European Union, or Brexit, have undermined confidence and slowed economic expansion. ECB President Mario Draghi acknowledged in January that “risks surrounding the euro area growth outlook have moved to the downside” – but singled out such external factors as causes for the gloomier picture.

Domestically, unemployment held steady in February at 7.8 per cent, its lowest level since 2008, the EU statistics authority Eurostat said last week.

And wages are rising in countries like Germany where shortages of skilled workers are making themselves felt.

But the stronger labour market has not had the expected impact of boosting inflation towards the ECB’s target of close to, but below 2.0 per cent – the core of its mandate to secure price stability over the medium term.

Year-on-year price growth was just 1.5 per cent in February and 1.4 per cent in January, Eurostat said, with the ‘core’ figure – ruling out volatile items like food, alcohol and energy – even lower at 1.0 per cent. — AFP