European Central Bank lowers growth and inflation forecasts

3rd September 2015


The European Central Bank (ECB) has slashed forecasts for inflation and growth in 2015, as well as the coming two years.

On Thursday, after the ECB announced it was maintaining its main interest rate on hold at 0.05%, president Mario Draghi admitted that be anticipated that inflation in the eurozone would remain “very low” for some years to come.

He went as far to say that the currency bloc could fall into deflation in the coming months. Draghi said it expected inflation to be 0.1% for 2015, rising to 1.5% in 2016 and 1.7% in 2017, as a result of lower energy prices according to BBC News.

He said that while Europe’s economic recovery would continue, it would be “at a somewhat weaker pace than expected”, chiefly as a result of concerns over China’s economic slowdown.

The Bank now expects eurozone GDP expansion of 1.4% this year, down from a previous estimate of 1.5%, and 1.7% in 2016, from its previous forecast of 1.9%.

The ECB, made no change to its quantitative easing programme and also held the rate for bank overnight deposits at -0.2%, meaning banks must pay to hold funds at the central bank.

More positively, the final Markit purchasing managers’ index (PMI) for eurozone services, which monitors growth in the sector, showed that activity recovered in August after a dip in July to match June’s highest level since May 2011. Specifically, the survey’s business activity index rebounded to 54.4 in August, after dipping to 54.0 in July from 54.4 in June – a count of 50 and above marks growth.

Howard Archer, chief UK and European economist at IHS Insight believes that the eurozone should be able to achieve reasonable, if unspectacular growth over the coming months – although the threat to global growth that “could come from a marked Chinese slowdown clearly poses a downside risk”. He said: “Overall, the conditions remain in place for a modest Eurozone cyclical upturn, and it is notable that overall Eurozone business and consumer confidence rose to a four-year high in August according to the European Commission.”

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