Draghi reserved about Eurozone’s growth prospects

Martin Schulz, European Parliament President (on the right) receives Mario Draghi, ECB President in Strasbourg (European Parliament / Audiovisual Services).

Martin Schulz, European Parliament President (on the right) receives Mario Draghi, ECB President in Strasbourg (European Parliament / Audiovisual Services).

Yesterday, Mario Draghi, President of the European Central Bank, during the Press conference following the meeting of the Governing Council, in answering a journalist’s question appeared quite reserved about Eurozone’s growth prospects. Despite the fact that ECB’s staff projections for 2013 have been revised upwards, estimates for 2014 growth potential are now downgraded. Not to forget that the overall assessment for 2013 remains negative with ECB predicting that real GDP should declining by 0.4% this year. That’s why ECB’s Governing Council had to face a possible reduction of central bank’s basic interest rate but at the end left it unchanged at 0.5%.

In any case Draghi said that the Governing Council “expects the key ECB interest rates to remain at present or lower levels for an extended period of time”. This statement comes under the new ECB policy stance of ‘forward guidance’ designed to reassure everybody that central bank interest rates will remain at close to zero levels in the foreseeable future and in any case for as long as it is needed to provide support to the resumption of economic activity.

Cheap and abundant money

In this way the ECB guarantees that monetary policy will remain accommodative until Eurozone enters in a sustainable path of noticeable growth. As Draghi indirectly left to be understood ECB’s mandate doesn’t permit a fixed conditionality of monetary policy to macroeconomic factors like growth and unemployment, as the Bank of England does. Still ECB is decisively perusing its accommodative policy facilitating the real economy to start growing again with substantial rates.

Draghi’s reserves about Eurozone’s growth prospects were based also on the fact that “The risks surrounding the economic outlook for the euro area continue to be on the downside. Recent developments in global money and financial market conditions and related uncertainties may have the potential to negatively affect economic conditions. Other downside risks include higher commodity prices in the context of renewed geopolitical tensions, weaker than expected global demand and slow or insufficient implementation of structural reforms in euro area countries”. In short Draghi is not at all sure that the 0.3% increase of Eurozone’s GDP during the second quarter of 2013 is a good base to predict stronger growth in the immediate future.

Questionable growth

Reserves about Eurozone’s growth prospects stem also from the financial sector. According to ECB’s data the annual growth rate of loans to households remained at 0.3% in July, largely unchanged since many months. This near to zero rate of increase is much lower than inflation, meaning that the real value of loans to households decreases constantly. On top of that a 0.3% increase in household loan balances is also much lower than the interest rates on them, estimated at around 6% to 11%. This signifies that no new loans are accorded to individuals while there is extended deleveraging in household credit. Obviously this is not good news for growth, despite the fact that consumer spending increases noticeably.

Bad news for growth comes also from bank loan balances to the real business sector (non-financial agents). Again according to ECB data “The annual rate of change of loans to non-financial corporations was -2.8% in July, compared with -2.3% in June”. Draghi translated it like this, “Weak loan dynamics continue to reflect primarily the current stage of the business cycle, heightened credit risk and the ongoing adjustment of financial and non-financial sector balance sheets”.

In reality ECB is not at all sure that the worse is behind Eurozone. Geopolitical risks like an US hit in Syria and its possible repercussions may drive consumer spending and business investments quite deep in the negative area and send Eurozone back to the downward part of the curve. Not to forget that Eurozone was losing parts of its GDP for six quarters in a row until the first three months of this year.

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

3 ways to fix the way we fund humanitarian relief

Countries must make teaching profession more financially and intellectually attractive

6 ways social innovators are responding to the COVID-19 pandemic

EU27 leaders unite on Brexit Guidelines ahead of “tough negotiations” with Theresa May

COVID-19 highlights how caregiving fuels gender inequality

Commission notifies the Republic of Panama over the need to step up action to fight against illegal fishing

Amid troop build-up in Rohingya’s home state, UN appeals to Myanmar for peaceful solution

Is it just visa-free travel that Erdogan demands from the EU to not break the migration deal?

The beginning of a revolution in healthcare

‘Multiplicity’ of rights violations in Ukraine as fifth winter of conflict bites

COVID-19: Commission presents guidelines for border measures to protect health and keep goods and essential services available

Parliament approves €34m in EU aid to Greece, Poland, Lithuania and Bulgaria

Palestinian students ‘compelled to drop dreams because of financial cuts’

How private investment can boost education access and quality in the digital economy

5 facts to know about Africa’s powerhouse – Nigeria

Parliament calls on member states to fully exploit the European Youth Guarantee

‘Power is not given, power is taken’, UN chief tells women activists, urging push-back against status quo

Mosul’s ‘3D contamination’ adds to challenges of deadly mine clearance work

Doing the right thing at the worst time: this is why protecting human rights protects businesses

COVID-19 has accelerated India’s digital reset

6th Edition of India m2m + iot Forum to open its door on 14th January, in association with The European Sting

Commission publishes EU Code of Conduct on countering illegal hate speech online continues to deliver results

Services are the hidden side of the US-China trade war

4 myths about manufacturing in the Fourth Industrial Revolution

Why protectionism spells trouble for global economic growth

Brands can be a force for good and for growth. Here’s how

Mali not fulfilling its ‘sovereign role’ in protecting its people: UN human rights expert

World Migratory Bird Day highlights deadly risks of plastic pollution

‘Are we ready for the age of disruption?’, Thailand’s Foreign Minister asks UN Assembly

This is the biggest risk we face with AI, by Google CEO Sundar Pichai

European Youth Forum welcomes the European Commission’s proposed revision of the Union Code on Visas, however it does not go far enough

State aid: Commission approves €12 million Danish scheme to compensate damages caused by cancellations of large public events due to COVID-19 outbreak

Women in Iceland have walked out of work to dispute the gender pay gap

Student Tutor Ratio: at a glance

ITU Telecom World 2017 on 25-28 September in Busan, Republic of Korea

A Sting Exclusive: the EU referendum is about fighting for an outward-looking Britain

Scientists now think air pollution is fuelling violent crime

Siemens-Alstom merger: Can Germany and France lobby to circumvent EC’s rejection, against EU consumers’ interests?

Bangladesh: Head of UN refugee agency calls on Asia-Pacific leaders to show ‘solidarity’ with Rohingya refugees

European creativity and digital economy are drowning in a copyright swamp

‘Continue working together’ UN chief urges DR Congo, as country heads to polls

MWC 2016 LIVE: CEOs issue rallying call to drive ‘gigabit economy’

What the car industry has done to help fight climate change – and what it needs to do next

Speeches of Vice Premier LIU He and Vice President of the European Commission Jyrki Katainen at the Press Conference of the Seventh China-EU High-level Economic and Trade Dialogue

Does it pay for cities to be green?

Despite lagging in the Global Goals, Africa can meet the 2030 deadline: Rwandan President

A Sting Exclusive: “Paris and beyond: EU action and what COP21 should deliver”, Green MEP Keith Taylor discusses from Brussels 

What happens when you toss your water bottle in the trash?

Keep Africa’s guns ‘from firing in the first place’, UN political chief urges

Costa Rica is one of the world’s happiest countries. Here’s what it does differently

Coronavirus COVID-19 wipes $50 billion off global exports in February alone, as IMF pledges support for vulnerable nations

Frans Timmermans on the European Green Deal as a growth strategy at the Bruegel Annual Meetings

This is what great leadership looks like in the digital age

Resolving Israel-Palestinian conflict, ‘key to sustainable peace’ in the Middle East: Guterres

Security Council marks transition from 15 years of UN peacekeeping in Haiti

EU-UK Statement following the High Level Meeting on 15 June

MWC 2016 LIVE: Ingenu steps up efforts to build LPWA networks across the globe

Trump reshapes the Middle East at the expenses of Europe

Tuesday’s Daily Brief: Hunger crisis in DR Congo, Swine Fever in Asia, Venezuela death investigation call, updates on Eritrea and Syria

The European Union continues to lead the global fight against climate change

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s