September 15, 2019 04:50 PM RSS

ECB Says Slowdown Does Not Mean A Serious Recession

  • Wall Street Rebel | James DiGeorgia
  • 03/27/2019 12:52 PM
ECB Says Slowdown Does Not Mean A Serious Recession

Draghi’s comments come after the European Central Bank downgraded its growth projections by 54% for the region earlier this month. The euro area is set to grow 1.1% this year, down from a December forecast of 1.7%.

 
 

By James DiGeorgia

The President of the European Central Bank (ECB) suggested there was likely to be another delay in hiking interest rates. His dovish comments were made today while attending an economic conference in Frankfurt. Draghi was quoted as saying

"Our current reaction function is well designed to respond to further delays in inflation convergence. In such a situation, just as we did at our March meeting, we would ensure that monetary policy continues to accompany the economy by adjusting our rate forward guidance to reflect the new inflation outlook."

Like the U.S. Federal Reserve, the ECB has the mandate to ensure price stability with an inflation target of close but below 2 percent. In early March, the European Central Bank announced a delay to a previous plan to start increasing rates after the summer as data was showing that manufacturing growth was weakening throughout the euro-zone.

 

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Draghi’s comments now mean the ECB is positioned interest rates "to remain at their present levels at least through the end of 2019." These record low-interest rates environment has existed since the euro sovereign debt crisis of 2011 and has been intended as a way to boost inflation and stimulate economic growth.

The ECB has been the focus of tremendous criticism for implementing too many measures to help the spur economic growth in the eurozone and that these efforts could severely limit the European Central Banks options in future downturns. However, Draghi said Wednesday that these criticisms and concern are overblown…

"The ECB will adopt all the monetary policy actions that are necessary and proportionate to achieve its objective. We are not short of instruments to deliver on our mandate."

Draghi went on to sound a positive outlook by asserting that the temporary slowdown we’re seeing in the eurozone right now does not necessarily foreshadow a serious recession

"During the four euro area business cycle expansions since 1970, there have been 50 soft patches — defined as a two-quarter growth slowdown — and only four recessions. In fact, the euro area faced an analogous situation in 2016, when the economy also went through a soft patch triggered by a contraction in world trade. At that time, the strength of the domestic economy was able to shield the recovery from external uncertainties."

The European Union’s political and economic situation has been clouded by political and economic challenges in Italy, which entered a technical recession at the end of 2018; and by the United Kingdom’s Brexit struggle. The EU has also been impacted by growing concerns about a potential economic slowdown in the Chinese economy which the region relies on for exports. President Trump’s “America First” policies have ignited a worldwide trade war and dramatically ramped up global trade tensions and barriers. Draghi said yesterday

“The key question is whether, with monetary policy continuing to support the expansion, domestic demand will remain as resilient today,”

 

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The slower economic growth prospects and almost nonexistent inflation has prompted the ECB to announce further expansionary measures in early this month which include another program to stimulate bank lending in the eurozone, together with ruling out another rate hike. Draghi commenting on the ECB’s policy decisions…

"It was clear that the loss of growth momentum could become more broad-based and persistent if two risks were to materialize: first, if external demand were to remain weak; and second, if this were to spill over into domestic demand."


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