Draghi sends euro tumbling
THE European Central Bank yesterday admitted that the gloomy economic outlook could force it to beef up its emergency money-printing programme – sending the single currency into free fall.
ECB President Mario Draghi ( pictured) said the anaemic recovery in the eurozone was likely to continue at a ‘somewhat weaker pace’ than previously thought.
He warned the region could face more deflation in the coming months as the slowdown in China and lower oil and commodity prices take their toll on the rest of the world.
A renewed slowdown on the Continent – as well as in China – would be bad news for Britain as both are major export markets for the UK.
Figures from Markit showed Brit- ain’s once-booming private sector suffered its worst month for more than two years in August.
A separate report from BDO showed the UK high street endured a ‘summer to forget’ with sales in August down 4.3pc on the same month last year, the biggest fall for nearly seven years.
‘August saw an unexpectedly sharp slowing in the pace of economic growth,’ said Chris Williamson, chief economist at Markit.
Draghi said the ECB stood ready to extend the ‘size, composition and duration’ of its money-printing programme to kick-start the spluttering eurozone economy.
The central bank is pumping €60bn (£44bn) a month into the economy through quantitative easing to stimulate growth and avoid deflation.
The programme, launched in March, runs to September next year but analysts believe it will be extended. ‘The door to more QE is open,’ said Carsten Brzeski, an economist at Dutch banking group ING.
Draghi’s downbeat comments, at a press conference at ECB headquarters in Frankfurt, sent the single currency tumbling against the pound and the dollar. The euro fell as low as 72.77p, making £1 worth as much as €1.3742. However, the prospect of more cheap money flooding the eurozone helped push stock markets higher, with the FTSE 100 index closing up 110.79 points at 6194.10.
It came as the International Monetary Fund said ‘global growth remains moderate’ and that the downturn in China has had a ‘larger- than-previously envisaged’ impact on the rest of the world.
The ECB said it now expects inflation to be a mere 0.1pc this year, 1.1pc next year and 1.7pc in 2017 – below the 2pc target and down from its June projections of 0.3pc, 1.5pc and 1.8pc respectively.
It lowered its forecast for economic growth in the 19-nation eurozone to 1.4pc in 2015, 1.7pc in 2016 and 1.8pc in 2017 from June projections of 1.5pc, 1.9pc and 2pc.
Draghi said the forecasts were based on data taken before the latest downturn in China and market turbulence – and warned things could turn out even worse. He said the ‘weakening of the prospects of the Chinese economy’ should be ‘one of the major themes’ when G20 finance ministers and central bankers meet in Turkey today.
Howard Archer, chief UK and European economist at IHS Global Insight, said: ‘It is notable that the euro took a significant hit as the press conference proceeded.
‘The ECB will undoubtedly be hoping that the very real possibility of more QE to come will exert downward pressure on the euro, which would be beneficial for lifting growth and inflation prospects.’