Europe’s top economic authorities warn of risks
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.