Central banks still have ‘firepower’

CENTRAL banks still had more firepower they could use to counter a slowdown in global growth, which did not change the outlook for recovery in the euro zone, European economics commissioner Pierre Moscovici said yesterday.

In an interview at the World Economic Forum in Davos, Moscovici said he did not believe that there would be any return to an international financial crisis, despite turmoil in world markets during the first few weeks of 2016 triggered by China’s slowdown and low oil prices.

Asked whether the world’s main central banks had run out of ammunition to revive the global economy after years of record low interest rates and quantitative easing, he said: “They have got guns and they can act.”

While declining to recommend policy to the independent European Central Bank (ECB), the French Socialist said the ECB had taken the right action since 2012 to preserve the unity of the euro zone and showed it could resist any shock. ECB action had also addressed policy issues linked to weak growth “and we need to go on with that”, he said.

Moscovici said he did not expect any major change in the euro zone’s growth outlook when the European Commission issues an updated forecast next month, despite the sharp slowdown in China and tumbling stock and commodity markets.

The EU executive last forecast in November that the euro zone would grow by 1.8 percent this year and 1.9 percent in 2017 after an estimated 1.6 percent last year. “As I see it today I see no change, no major change in our forecast… for Europe. But of course we’ve got to take into account those downside risks. We don’t need to change our policy stance but to reinforce it,” he said.

The International Monetary Fund (IMF) cut its global growth forecasts for the third time in less than a year on Tuesday, as new figures from Beijing showed that the Chinese economy grew at its slowest rate in a quarter of a century in 2015.

But the IMF said lower oil prices would help support private consumption in Europe and, therefore, added 0.1 percentage point to its 2016 euro area growth forecast, bringing it to 1.7 percent, where it would remain for 2017.

On global market turbulence and falling commodity prices, Moscovici said: “I don’t feel the financial crisis is coming back. We don’t feel that we are facing the risk of a breakdown in world growth, but there are downsides that we need to address.” – Reuters