–Euro Area Risks ‘Have Moved to the Downside’
By Laurie Laird
FRANKFURT (MaceNews) – The European Central Bank said Thursday it has no immediate plans to loosen monetary policy, despite acknowledging a substantial loss of economic momentum in the euro zone and highlighting potential headwinds to the euro zone expansion.
“The risks surrounding the euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism,” according to a statement released following a meeting of the Bank’s rate-setting body.
The ECB’s governing council left its key benchmarks unchanged, with the deposit facility holding at -0.4% and the main refinancing operations rate at 0.0%.
The council reiterated its earlier guidance that key interest rates will remain at current levels “at least through the summer of 2019, and in any case for as long as necessary” to lift inflation to the Bank’s target of below – but close – to an annual rate of 2%.
The reinvestment of proceeds of maturing securities purchased during the Bank’s quantitative easing programme will continue to provide ample monetary support to the slowing euro zone, according to ECB President Mario Draghi. He also reiterated his optimism about tightening European labour markets and evidence of rising wages.
The ECB leader did concede that headline inflation “is likely to decline further in coming months” from an annual rate of 1.6% in December, as falling crude oil prices exert downward pressure on consumer prices and waning “external demand” takes a toll on growth.
Germany’s economy contracted by 0.2% in the third quarter the first reverse since the first quarter of 2015, while Italian gross domestic product declined by 0.4%. Policy makers have attributed that weakness to one-off factors, particularly a dip in auto production linked to the introduction of new European emissions standards.
But data released earlier Thursday suggested a more prolonged slowdown. The euro zone purchasing managers’ index, which is closely monitored by the ECB, fell to its lowest level in over five years in January, although the measure did not fall into contractionary territory. However, a separate purchasing managers’ index showed the Germany manufacturing sector contracting this month, for the first time in over four years.
Draghi insisted that the governing council retains plenty of hardware in its “tool box” should geopolitical uncertainty — particularly the rising threat of protectionism — continues to dampen growth. The ECB president declined to provide much detail on the governing council’s strategy should the euro zone continue to falter, other than to repeat earlier promises of providing “forward guidance … reinforced by reinvestment.”
— Courtesy of MT Newswires