Economic Slowdown: ECB Lowers Growth Projection For 2019

Growing uncertainty in the Euro-area has forced the European Central Bank to lower its 2019 growth projection and increased bank stimulus in an effort to boost growth in the region.

The ECB lowered growth forecast from 1.7 per cent predicted three months ago to 1.1 per cent, saying the region’s economic slowdown was bigger than previously estimated. The central bank announced another loan assistance package for banks and planned to extend existing stimulus.

Mario Draghi, the President, ECB, explained that growing protectionism across the world and uncertainties from emerging economies are hurting growth in the Euro-area.“The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment,” Draghi told journalists in Frankfurt on Thursday. “The risks surrounding the euro area growth outlook are still tilted to the downside.”

However, the economic slowdown in the Euro-area run deeper than just protectionism; business sentiment has plunged in recent months as businesses and investors were uncertain regarding Brexit negotiations. The region's largest economy, Germany, grew at its slowest rate in five years in 2018, down from 2.2 per cent in 2017 to 1.5 per cent and narrowly escaped recession despite ECB assuring businesses of strong economic recovery and promising to start balance sheet normalization in 2019.

That has now changed as the same ECB has started adding to stimulus and admitted its projections were slightly off.

Also, the inability of the region to reach an agreement with the European Union on Brexit is weighing on business decisions. For instance, Germany and the United Kingdom alone trade about €200 billion worth of goods per annum, putting businesses that built their revenue around exports and imports from the United Kingdom in an uncertain situation regarding their business or future investment.

In Italy it is not different, Europe’s fourth-largest economy plunged into recession in the final quarter of 2018 and the 2019 economic projection has also been slashed. Now Italy is looking towards China’s Belt and Road Initiative for future growth.

A fall-out between the U.S and Chinese delegates negotiating the trade dispute could worsen both the region's and global growth, especially after China adjusted its economic projections for the year and lowered its tax by 3 per cent for manufacturers to aid slowing growth and facilitate exports.

While this might boost foreign inflows into emerging economies, South Africa and Nigeria may struggle to attract foreign investors with their current economic situations.

The euro single currency fell for a fifth day on Friday against the U.S. dollar to $1.1234 as traders continued to dump the single currency.

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Black Widow 5 years ago Member's comment

Do you think any of these efforts will actually spur the needed growth?

Samed Olukoya 5 years ago Contributor's comment

It is very hard to tell because of Brexit uncertainty and global slowdown. The interest rate has been at zero for years and nothing sustainable has been achieved.