Business World

Tuesday 12 December 2017

Global activity will continue at modest pace this year - ECB

ECB sees subdued growth prospects in emerging markets. Photo: Bloomberg
ECB sees subdued growth prospects in emerging markets. Photo: Bloomberg
Colm Kelpie

Colm Kelpie

The European Central Bank (ECB) has warned that the global economic recovery weakened at the start of the year, and will continue only at a "modest" pace for the rest of 2016.

In a detailed assessment, the ECB said the recovery in the Eurozone is being dampened by subdued growth prospects in emerging markets, and volatile financial markets.

It said global activity had moderated at the start of the year.

The Frankfurt-based body said domestic demand should be supported further by the ECB's monetary policy measures, as well as by continued employment gains. "Moreover, the low price of oil should provide additional support for households' real disposable income and private consumption, as well as for corporate profitability and investment," the ECB said, in its latest economic bulletin.

"In addition, the fiscal stance in the euro area is slightly expansionary, partly reflecting measures in support of refugees.

"However, the economic recovery in the euro area continues to be dampened by subdued growth prospects in emerging markets, volatile financial markets, the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms."

Meanwhile, Eurozone government bond yields fell yesterday. They were affected by a drop in oil prices that pinned long-term inflation expectations near three-week lows. A merger between Banco Popolare and Banca Popolare di Milano did not have an immediate impact on Italian government bonds.

The Italian government bonds had been under pressure earlier this year due to concerns about the health of the country's banking sector.

The five-year breakeven forward traded around 1.44pc, well below the European Central Bank's target of just below 2pc.

It was even lower than before this month's ECB meeting, when the bank cut rates, boosted the bond-buying programme, and introduced a new scheme of free long-term loans to banks.

German 10-year Bund yields fell 2 basis points to 0.178pc, the lowest in two weeks. (Additional reporting Reuters)

Irish Independent

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