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ECB raises growth and inflation forecasts

International Business
Fri, 03 Jun 2016

Frankfurt: The European Central Bank (ECB) nudged up its 2016 growth and inflation forecasts yesterday, arguing that the risks facing the economy had declined and supporting expectations it would keep further stimulus under wraps at least until the autumn.

Keeping rates unchanged deep in negative territory, ECB president Mario Draghi argued that more stimulus was still coming from measures approved but not yet implemented, effectively dismissing calls for more ECB action and maintaining his argument for patience.

The ECB already plans to buy $1.94 trillion worth of assets in an attempt to revive inflation and kick-start growth. It had been worried that the euro zone was at risk of falling into a hard-to-break deflationary spiral.

Next week it starts buying corporate bonds and will offer ultra-cheap loans in late June, both measures aimed at cutting funding costs for corporate clients to induce investment and boost hiring.

Yet Draghi’s carefully nuanced statement underlined how fragile that recovery remains and how vulnerable it is to risks, including a slowdown in the global economy and possible fall-out from Britain’s June 23 EU referendum.

“The risks to the euro area growth outlook remain tilted to the downside, but the balance of risks has improved on the back of the monetary policy measures taken and the stimulus still in the pipeline,” Draghi  said. 

The ECB upgraded its 2016 euro zone growth forecast after first quarter growth beat all expectations, seeing a 1.6 per cent expansion, above the 1.4 pc it predicted in March. 

It kept its forecast of 1.7pc for next year unchanged while trimming it for 2018 to 1.7pc from 1.8pc. 

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