The European Central Bank (ECB) has downgraded the euro-zone growth figures for the next year and the year 2021. According to the bank analysis, the GDP will show 1,4 % growth in 2020 and the same in 2021. In March, the central bank estimated that the growth would be 1,6 % and 1,5 % respectively.
The ECB says that the prolonged uncertainty over several economic and political issues have put the growth expectations down. Global trade, Brexit and some geopolitical factors are the major issues impacting the economic growth. The ECB President “whatever it takes” Mario Draghi also pointed in the press conference today that the rising protectionism is also hindering the global growth.
What he also said is that the markets are expecting something bigger than the markets disputes now. “Disruptions beyond trade” have to be taken seriously, he mentioned.
The ECB estimates that the average exchange rate of US dollar would be USD 1,12 per euro over the period 2019-21. This is 1,7 % lower that in the March estimates. Inflation estimate is 1,3 % for this year and 1,6 % for the year 2021.
The ECB decided today to leave the key interest rates unchanged at least through the first half of 2020. The Central Bank also confirmed its determination to act if needed and thus signaled the possible QE. This would also mean that the banking sector in the euro-zone will benefit from the low central banks rates in order to keep the economy and investments active also during the next year.
– The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation, the ECB said.
The change in the leadership in the ECB will have its impact for the future decisions and estimates. It is now clearly seen that the candidates for this top position offer different kind of solutions for the economy recovery. The EU leaders are expected to make the formal decision of this job during their July meeting. Mario Draghi is leaving the central bank on the 31st October.
The US Federal Reserve will be also debating the possible rate cut during its June meeting. According to Wall Street Journal the markets are expecting the rate cut to happen in June meeting with a 25% chance and at least one cut by the meeting after that on July 30-31 with a 75 % chance.