Europe’s top eco­nomic au­thor­i­ties warn of risks

The Pak Banker - - COMPANIES/BOSS -

Europe's top eco­nomic au­thor­i­ties warned Thurs­day of the dan­gers to the re­gion from the slow­down in China, weak in­fla­tion and height­ened geopo­lit­i­cal un­cer­tain­ties.

Euro­pean Cen­tral Bank said it was im­per­a­tive that pol­i­cy­mak­ers act swiftly to deal with low in­fla­tion, while the Euro­pean Union down­graded its growth fore­cast for the 19-coun­try eu­ro­zone this year and warned of fur­ther re­duc­tions. All eyes are on the ECB ahead of its next pol­icy meet­ing on March 10. There's a grow­ing con­sen­sus in the mar­kets that the bank will fol­low up last De­cem­ber's stim­u­lus boost with a fur­ther pack­age of mea­sures to help nudge up eu­ro­zone in­fla­tion, which is way below tar­get at an an­nual 0.4 per­cent rate. The bank's aim is to have in­fla­tion just below 2 per­cent. Draghi gave fur­ther sup­port to those ex­pec­ta­tions on Thurs­day. "The risks of act­ing too late out­weigh the risks of act­ing too early," he said in a speech in Frank­furt, Ger­many.

Though low in­fla­tion helps con­sumers by mak­ing gro­ceries and gas cheaper, it can sig­nal un­der­ly­ing weak de­mand. And if it be­comes chronic it can cor­rode the wider econ­omy - it can make debt harder to re­pay and de­crease spend­ing by peo­ple and com­pa­nies still work­ing off debt bur­dens. And if low in­fla­tion or fall­ing prices be­come in­grained, that can weigh on wages, in­vest­ment and growth. Since emerg­ing from its long­est-ever re­ces­sion in the middle of 2013, growth has been too low to push in­fla­tion back up. Ex­ter­nal fac­tors such as the slide in oil and raw ma­te­rial costs have only con­trib­uted to keep in­fla­tion low.

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