ECB trims 2018 EU growth forecast on trade fears
RIGA: The European Central Bank on Thursday slashed its 2018 eurozone growth forecast to 2.1 from 2.4 per cent, 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 told reporters in Riga.
The more downbeat assessment comes after the euro area got off to a shaky start in 2018 with growth slowing to 0.4 per cent in the first quarter, compared with 0.7 per cent in the previous three months.
Markets have been rattled in recent weeks by a mounting trade dispute with the United States, which has raised the prospect of a tit-for-trade transatlantic trade war, while the spending plans of Italy’s new populist government have 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 per cent 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 2.0 inflation.
The bank raised its inflation forecasts for 2018 and 2019 to 1.7 from 1.4 per cent, which Draghi said was mainly down to “higher oil prices”.
For 2020, the inflation outlook remained unchanged at 1.7 per cent.
The European Central Bank said on Thursday it will end its unprecedented bond purchase scheme by the close of the year, its biggest step in dismantling crisis-era stimulus a decade after the start of the euro zone’s economic downturn.
But in a balanced announcement reflecting the uncertainties hanging over the region’s economy, it also signalled the move would not mean a rapid policy tightening by adding that interest rates would stay at record lows at least until summer 2019. The new rates guidance prompted the euro to reverse initial gains against the dollar of up to 0.5 per cent and fall to $1.1744 − 0.4 per cent down on the day. Markets had been set up for a 10-basis-point hike in the ECB’S benchmark deposit rate − currently at -0.4 per cent − by June 2019.
Mario Draghi gives a press conference in Riga, Latvia, on Thursday.