ECB trims 2018 EU growth fore­cast on trade fears

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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.

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