Monday 27 February 2017

Irish Central Bank says euro-region recovery may ‘moderate’

Governor of the Irish Central Bank, Patrick Honohan. Photo: Collins
Governor of the Irish Central Bank, Patrick Honohan. Photo: Collins

The euro-region recovery may "moderate somewhat" in the second half of the year as governments withdraw stimulus measures and cut spending to reduce budget deficits, Ireland’s central bank said.

“The euro-area recovery is expected to continue, but is now likely to occur at a more gradual pace than was anticipated” in April, the central bank led by Patrick Honohan said in its quarterly report published today. “This primarily reflects the negative short-term impact of fiscal consolidation.”

European governments from Ireland to Spain have been forced to step up budget cuts after the Greek fiscal crisis eroded investor confidence and pushed up borrowing costs. The euro- region economy may only show a “somewhat uneven” recovery, the Irish central bank said, echoing remarks by European Central Bank President Jean-Claude Trichet earlier this month.

While a recovery in exports is expected to continue, domestic activity “appears likely to remain subdued,” according to the report. Governments’ deficit-reduction plans could curb demand, hurting a recovery, it said.

Still the “long-term benefits of such measures are expected to outweigh the short-run costs,” the central bank said.

“The risks to the growth outlook over the medium term appear on the downside, given the potential for the consolidation to have a bigger-than-expected impact on growth in both the euro area and the global economy more generally,” the central bank said.

“The former could result in an even weaker expansion in domestic demand, while the latter could see a slower recovery in foreign demand.”

The ECB will hold its next monetary policy meeting on August 5 in Frankfurt.

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