Sunday 22 October 2017

ECB cuts eurozone growth outlook

President of European Central Bank Mario Draghi says the eurozone economy should recover later this year
President of European Central Bank Mario Draghi says the eurozone economy should recover later this year

The European Central Bank has cut its growth forecast for the troubled euro area this year, but said there were enough signs of improvement ahead that it did not need to cut interest rates further.

The decision to hold off and wait for the economy to gather steam underscores the lack of quick fixes the ECB and Europe's institutions have to deal with region's stubborn recession and problems with too much debt.

Bank President Mario Draghi said the economy of 17 European Union countries that use the euro would shrink 0.6% this year compared with the previous forecast of a 0.5% decline.

Mr Draghi, however, stuck with his forecast that the eurozone would begin to see growth at the end of the year. He was also slightly more optimistic about 2014, forecasting 1.1% growth, up from 1.0 % previously.

The ECB chief spoke today at a news conference after the bank's 23-member governing council chose to leave its key interest rate unchanged at a record low 0.5%.

He said recent surveys of economic optimism had shown improvement and the economy "should stabilise and recover in the course of the year."

Mr Draghi added that that while some indicators, such as lending to companies, were downbeat, there were others, including business sentiment, which had improved. The consensus, after a "very rich discussion" on the governing council, was that there "wasn't any directional change that would justify taking action at this time," he said.

After the eurozone crisis over too much debt broke in late 2009, the region's governments slashed spending and raised taxes - either to meet conditions for bailout loans or to reassure jittery bond investors. But austerity has also inflicted severe economic pain. The eurozone's economy shrank 0.2 % in the first three months of this year compared with the previous quarter, the sixth straight quarterly contraction. Unemployment is at 12.2%, the highest since the euro was introduced in 1999.

Mr Draghi said that the bank's governing council had also discussed a wide range of measures that go beyond interest rates to help stimulate the eurozone's economy. These so-called unconventional measures include charging banks to keep money at the ECB by lowering its deposit rate to below zero, looking at ways to use financial markets to increase lending for small businesses, and more central bank lending to banks.

But in the end, he said, "we see no reason to act on all these fronts. These are all measures we keep on the shelf." The ECB also lowered its inflation outlook for this year to an annual 1.4% from 1.6% previously. The inflation forecast for next year was unchanged at 1.3%.

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