ECB sees ‘no reason’ for eurozone slowdown

European Central Bank President Mario Draghi said yesterday he saw “no reason” why growth in the eurozone should wither, minimising a sharp slowdown in the third quarter. “There is certainly no reason why the expansion in the eurozone should suddenly come to an end,” Draghi said at a Frankfurt conference, in comments confirming his determination to end massive central bank support for the economy this year. But he added that if bank lending dried up or inflation fell back, then that “should in turn be reflected in an adjustment in the expected path of future interest rates.” 

That would suggest interest rates could remain at historic lows beyond summer 2019, analysts said. The ECB chief “just sent a clear signal of the ECB’s willingness to err on the side of caution” before raising rates, ING Diba bank economist Carsten Brzeski commented. Draghi repeated his assessment that risks to economic growth in the bloc were “broadly balanced” despite looming threats. That judgement would back ECB plans to end in December its “quantitative easing” stimulus to the economy, designed to bring inflation up to its target of just below 2.0 percent.

After more than three years, the bank will stop regular purchases of government and corporate bonds that have reached a total of more than 2.5 trillion euros ($2.8 trillion), pumped into the economy to stimulate growth. Growth in the 19-nation single currency area slowed to just 0.2 percent between July and September, with shrinking output in heavyweight economy Germany a major factor. “A gradual slowdown is normal as expansions mature and growth converges towards its long-run potential,” Draghi said.

He also underlined “one-off factors” such as cold weather, a flu outbreak, industrial action and the introduction of new car emissions tests that have braked production in the vital sector since September. But the greater danger, he argued, was from “trade uncertainty... in particular relating to protectionism” that could further weigh on already sluggish global trade growth.