The president of the European Central Bank said growth projections for the eurozone in 2019 had been revised down “substantially” on weaker than expected economic data.
Mario Draghi said on Thursday the ECB’s new outlook for annual gross domestic product growth in the bloc was 1.1 per cent in 2019, 1.6 per cent in 2020 and 1.5 per cent in 2021. Compared with the bank’s December forecasts, the outlook had been “revised down substantially”, he said.
In December, the ECB had forecast GDP growth of 1.7 per cent in 2019, 1.7 per cent in 2020 and 1.5 per cent in 2021.
Mr Draghi pointed to weak economic data for the eurozone in recent months, particularly in the manufacturing sector. A slowdown in international demand had been compounded by some “country and sector specific factors”, he said.
He also flagged persisting geopolitical threats in a period of “pervasive uncertainty”, including protectionism and vulnerabilities in emerging market economies.
“While signs that some of the idiosyncratic domestic factors dampening growth are starting to fade,” he said, weakening economic data had meant a “sizeable moderation in the pace of economic expansion that will extend into current year”.
On Thursday, the ECB announced it would keep interest rates on hold until at least the end of this year, and made a fresh offer of cheap funding for the bloc’s banks. It had previously said rates were expected to remain at their current level “at least through the summer of 2019”, but extended this forecast amid mounting concerns about a slowdown in eurozone growth and productivity.
The bank held its benchmark main refinancing rate at zero and kept the deposit rate at minus 0.4 per cent. It also downgraded its forecast for annual eurozone inflation, to 1.2 per cent in 2019, 1.5 per cent in 2020 and 1.6 per cent in 2021 compared to December projections of 1.6, 1.7 and 1.8 per cent.
The ECB president said the governing council’s decisions had been “unanimous”. “Given the complexity of the package I think that’s a very, very positive sign for the cohesiveness of the governing council and of our deliberations,” he said.
He said the measures would increase the resilience of the eurozone economy, though added the ECB had no control over factors that might weigh on the bloc’s economy from the rest of the world. Those included the UK’s exit from the EU and the US-China trade dispute.
Nevertheless, Mr Draghi said looking ahead the negative impact of weaker economic data were expected to “unwind”, with the euro area supported by a strong labour market, rising wages and “rising, albeit slower,” expansion in global activity.
The euro slipped as much as 0.3 per cent immediately following the announcement, and was down 0.59 per cent to $1.1240 at pixel time.
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