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.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

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

CDNIFY @ TheNextWeb 2014

EU Council approves visa-free travel for Ukraine and cement ties with Kiev

Refugee crisis update: Commission is struggling alone with little help from EU or G7 leaders

This is how people in Europe are helping lead the energy charge

Quality Internships: Towards a Toolkit for Employers

Malta and Slovakia: serious shortcomings in the rule of law

This robot has soft hands. It could be the future of sustainable production

Love unlimited

Banking package: Parliament and Council reach an agreement

Defence: European Commission paves the way for first joint industrial projects under EU budget

The anti-vaccine movement shows the peril of a post-truth world

Everything you need to know about water

Reform of road use charges to spur cleaner transport and ensure fairness

Protests, violence in Haiti prompts international call for ‘realistic and lasting solutions’ to crisis

It’s time to fulfil the promises made to women 25 years ago

JADE Spring Meeting 2016 highlights

The JADE Spring Meeting is about to begin

European Youth Event 2016 – bridge between youth and policy makers

Contact the Sting

China in My Suburbs

World Population Day: ‘A matter of human rights’ says UN

Cybersecurity needs a holistic approach. Here are three ways to build protection

A Sting Exclusive: “Junior Enterprises themselves carry out projects focusing on the environment”, JADE President Daniela Runchi highlights from Brussels

European Commission reacts to the US restrictions on steel and aluminium affecting the EU

Turkey presents a new strategy for EU accession but foreign policy could be the lucky card

Why carbon capture could be the game-changer the world needs

How telehealth can get healthcare to more people

Two days left until General Data Protection Regulation (GDPR), lots of newsletter opt-outs but does the EU citizen really know?

Can the world take the risk of a new financial armageddon so that IMF doesn’t lose face towards Tsipras?

From glass ceiling to glass cliff: women are not a leadership quick-fix

MEPs vote to limit negative impact of no-deal Brexit on citizens

How tomorrow’s buildings will make you – and the planet – healthier

Mainland Europe adopts Germanic cartel business patterns

UN nuclear watchdog will help verify DPRK nuclear programme, if agreement forthcoming

FROM THE FIELD: How the smell of fresh bread transformed one refugee life

Economic sentiment and business climate stagnate in miserable euro area

The EU Commission lets money market funds continue the unholy game of banks

The power of digital tools to transform mental healthcare

“The Belt and Road Initiative should be mutually beneficial for EU and China and every participating country”, Vice-President Papadimoulis of the European Parliament underscores from European Business Summit 2018

EU unveils plan to accelerate Capital Markets Union ahead of London’s departure from the bloc

Drugs cost too much. There is a better way to fund medical innovation

Make progress or risk redundancy, UN chief warns world disarmament body

Is there a way out of the next financial crisis? Can more printed money or austerity save us all?

Here’s what a Korean boy band can teach us about globalization 4.0

Blockchain can change the face of renewable energy in Africa. Here’s how

From inconvenience to opportunity: the importance of international medical exchanges

Promoting rule of law and fundamental rights in the EU

How can we regulate disruptive technologies?

Parliament backs a modernised EU electoral law

Supercomputing could solve the world’s problems, and create many more

Globally, youth are the largest poverty-stricken group, says new UN report

Risks rising in corporate debt market

Amazon indigenous groups want to create a nature sanctuary the size of Mexico

Unlock the value proposition for Connected Insurance

Managing and resolving conflicts in a politically inclined group of team members

EU budget: Stepping up the EU’s role as a security and defence provider

Mali: UN chief calls for calm as clashes leave over 20 dead in Mopti

Is Erdogan losing game and match within and without Turkey?

The Council unblocks all EU budgets

Italy’s revised budget remains roughly unchanged waiting for Europe’s fury

More Stings?

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