ECB slashes 2018 eurozone growth forecast to 2.1 pct on trade fears

EU cenbank gets ready to pull the plug on stimulus scheme

RIGA, June 14, (Agencies): The European Central Bank on Thursday slashed its 2018 eurozone growth forecast to 2.1 from 2.4 percent, 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 percent in the first quarter, compared with 0.7 percent 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-fortrade 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 percent respectively.

Turning to inflation, Draghi said the bank’s governing council was con- vinced 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 percent, which Draghi said was mainly down to “higher oil prices”.

For 2020, the inflation outlook remained unchanged at 1.7 percent.

Meanwhile, the European Central Bank announced on Thursday it would wrap up its unprecedented bond purchase scheme by the close of the year, its biggest step in dismantling crisisera stimulus a decade after the start of the eurozone’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 through the summer of 2019 and in any case for as long as necessary”.

The new rates guidance prompted the euro to reverse initial gains to fall over one percent to $1.1670, close to its biggest one-day loss since October. Markets had been anticipating a 10-basis-point hike in the ECB’s benchmark deposit rate — currently at -0.4 percent — by June 2019.

ECB President Mario Draghi declined to give more detail about the timing of rate moves in a news conference after the policy meeting, this time held away from the bank’s Frankfurt headquarters in the Latvian capital Riga.

“We didn’t discuss when to raise rates,” he said.

“This decision has been taken in the presence of a strong economy with increasing uncertainty,” he said of a political landscape characterised notably by rising trade tensions between the United States, Europe and China.