Does Draghi have another ace up his sleeve given his Quantitative Easing failure?

_Mario Draghi ECB

Mario Draghi looks confident here defending Quantitative Easing in 2015, at the EP Committee on Economic and Monetary Affairs Monetary Dialogue, last November. Mario Draghi is the President of the European Central Bank (EP Audiovisual Services, 17/11/2014)

Last Monday Eurostat, the statistical service of the European Union, released a flash estimate for euro area annual inflation revealing a -0,2% inflation rate for February. The latter has worried the European Central Bank’s (ECB) officials and especially its president Mario Draghi. ECB’s Governing Council meeting which is taking place next week will have to reconsider its monetary policy and try to revert the ongoing situation.

However, Europe is experiencing serious problems from which cannot seem to recover. The growth rate in the eurozone manufacturing sector continued to slow down in February according to Eurozone Manufacturing PMI.

Deflation is back

Inflation rate has reached negative areas showing that immediate actions are needed to be taken. The last time that deflation threatened the European edifice was 5 months ago. More in detail, last September’s inflation rate dropped down to -0,1%, mainly driven by the low energy prices. The same is happening now with the effect of low oil prices (-8% compared to 5,4% in January) to be clearly visible.

What is more, services are about to have a 1% annual rate, or 0,2% down compared with January. Food, alcohol and tobacco is estimated to reach 0,7% while non-energy industrial goods will be 0,3%. All main components of the euro area inflation have been decreased contributing to the negative rate this month.

It seems that low energy prices are affecting indirectly the prices of the rest of goods and services which has as a result to lower even more inflation rates. This relation must be estimated by ECB’s analyst because it could affect long-term rates as well.

How will ECB respond?

Needless to say that the above have created an extra burden to ECB’s officials who are now likely to deploy even more the weapons that ECB possesses in its arsenal. The latter is shown at a letter sent by Mario Draghi to Jonas Fernadez, member of the European Parliament. More specifically, the president of the ECB states: “At its next meeting, the Governing Council will benefit from a more comprehensive picture of the economic situation and of the medium-term price outlook, including the new staff macroeconomic projections, which will also cover the year 2018 and include a more in-depth analysis of potential second-round effects. In preparation for the meeting, work is being carried out to ensure that all the technical conditions are in place to make the full range of policy options available for implementation, if needed.”

Mario Draghi is most probably going to proceed to lowering deposit rates by 10 basis points and increasing asset purchases by 10 billion euros. By using these tools, the president of the ECB expects to fight low inflation or deflation rates and reach its inflation target of close but just below 2%.

Is ECB’s policy really working?

But even Quantitative Easing (QE), the powerful weapon of many central banks (including ECB), which is meant to boost stimulus in the staggering European economy is not providing the desired results. When it was launched, back in January 2015, it was claimed to be the European messiah. But more than a year later, it is not working as expected. That is of course also triggered by the uncertain growth outlook of the emerging economies, the turbulences in the financial markets, the geopolitical risks and the low investment and consumer confidence. All the above events are contributing to Europe’s sluggish growth.

Manufacturing sector slows down pressuring ECB

Markit Eurozone Manufacturing PMI report, which is released by the research group Markit and measures the growth of the manufacturing sector, was also disappointing. The data show that the growth rate in the Eurozone decreased to 51.2 in February compared to 52.3 last January. The latter reveals a close to contraction levels manufacturing sector as “expansions in production, new orders, new export business and employment have lost momentum”.

Chris Williamson, Chief Economist at Markit also commented on these findings: “With factory output in the eurozone showing the smallest rise for a year in February, concerns are growing that the region is facing yet another year of sluggish growth in 2016, or even another downturn. With all indicators – from output and demand to employment and prices – turning down, the survey will add pressure to the ECB in order to act quickly and aggressively to avert another economic downturn.”

More measures are needed

During ECB’s meeting that will take place on March 10 it is expected to be announced a more aggressive action plan. But it is quite obvious that even if ECB will further relax its monetary policy, it will not manage to increase inflation rates to close to 2% levels and boost economic growth. “Bolder” measures must be taken that can adequately overcome the effects of the Chinese economy slowdown and the low oil prices.

The critical point here now though is if and when European officials and leaders will address the issues of inflation and growth effectively enough in order to revive surely and steadily Old Continent’s economy.

Advertising

Advertising

Advertising

Advertising

Featured Stings

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

UN chief welcomes ‘first concrete step’ in normalizing Eritrea-Ethiopia relationship

European Business Summit 2014 : The Sting Report, Day II – Business, Politics and EBS 2015

Climate change will never be combatted by EU alone while some G20 countries keep procrastinating

Amid strong outlook for U.S. economy, risks abound

EU to manage external borders against the will of member states; Greece to be the first target

Does research make sense any more? The dire need for new ways to measure success

Syria: WHO appeals for funding to sustain critical health care for millions trapped by conflict

UN rights experts call on Russia to release Ukrainian film-maker whose life is in ‘imminent danger’

Financing the 2030 Agenda: What is it and why is it important?

Historical success for the First ever European Presidential Debate

The mental health of health professionals: is it worth it?

Central Africa: Security Council concerned by ‘grave security situation’, calls for better agency cooperation

EU Commission expects consumer spending to unlock growth

5 ocean success stories to chase away the blues

New York high school students are getting free water bottles to cut plastic waste

Here’s how to find a job you really love

ECB’s new money bonanza handed out to help the real economy or create new bubbles?

Greenpeace’s saints and sinners in the tech world

The West – the EU and the US – is writing off Turkey’s Erdogan

ECB to buy corporate bonds: Will government financing be the next step?

Humanitarian Aid 2016: The needs, the highlights, the crisis and the relief

How ducks are helping Bangladeshi farmers cope with cyclones

COP21 Breaking News_03 December: Unprecedented Global Alliance for Buildings and Construction to Combat Climate Change

Counting unemployment in the EU: The real rate comes to anything between 16.1% and 20.6%

What the buoyant US economy means for the rest of the world

MWC 2016 LIVE: Industry looks to reduce mobile gender gap

MWC 2016 LIVE: T-Mobile US reveals 5G trial plans

The EU Parliament sidesteps the real issues about banks, while the US target the Eurozone lenders

European Junior Enterprises to address the significant skills mismatch in the EU between school and employment

Climate change update: consistent global actions urgently needed as we are running out of time

WHO study reveals ‘game-changer’ drug with potential to save thousands of women’s lives in childbirth

‘Habitual residence’ rules deprive EU workers from social benefits

Sanctions on Russia to be the biggest unity test at this European Council

EU Telecoms deal: Fees on calls across the EU capped and 5G network by 2020

Senior UN adviser sees ‘rare’ victory for humanitarian diplomacy as aid convoy reaches desert camp in Syria

The US + Britain trivialize mainland Europe, NATO and the EU

Global Citizen-Volunteer Internships

India m2m + iot Forum Hosts Successful 4th Editions of India Smart Cities Forum and India Smart Villages Forum

A strong European Union is a united European Union

UN forum spotlights cities, where struggle for sustainability ‘will be won or lost’

Give a chance to the brothers of Ailan: reception of refugees in Greece

168 hours left for MEPs – ECOFIN Council to deliver a Banking Union


Re-thinking citizenship education: bringing young people back to the ballot box

‘Great Pacific Garbage Patch’ clean-up project launches trial run: UN Environment

Will the Greek economy ever come back to growth?

A Sting Exclusive: EU Commissioner Mimica looks at how the private sector can better deliver for international development

Nigeria: UN chief ‘appalled’ by killing of aid worker; calls for release of remaining hostages

Four ways Artificial Intelligence can make healthcare more efficient and affordable

More than just a phone: mobile’s impact on sustainable development

Hungary: people born in the 2020s won’t have legal rights any more to buy tobacco

Energy: new target of 32% from renewables by 2030 agreed by MEPs and ministers

The European Sting writes down the history LIVE from G20 Leaders’ Summit in Turkey

Menu for change: why we have to go towards a Common Food Policy

Does Draghi have another ace up his sleeve given his Quantitative Easing failure?

Brain Drain remains a crucial and unresolved issue

Creating shared value: an opportunity and challenge for entrepreneurship

ECB to people: Not responsible if you lose money on Bitcoin, your governments are

EU Commission indifferent on Court of Auditors’ recommendations

German banks suffer of nausea amidst rough seas

Main results of Asia-Europe Meeting (ASEM) – 18-19/10/2018

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