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

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

How to build a more resilient and inclusive global system

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

3 reasons all countries should embrace the Global Compact for Migration

Public health through universal health coverage can help to attain many SDGs

Not faith, ‘but those who manipulate the faithful’ driving wedge between religions, UN-backed forum in Baku told

Syria: ‘Violence, displacement’ and cold kill 11 infants ‘in the past two days’

The Brussels bureaucracy blocks the Youth Guarantee scheme

7 ways to break the fast fashion habit – and save the planet

ECB: The bastion of effective and equitable Europeanism keeps up quantitative easing

The global suicide rate is growing – what can we do?

Zuckerberg, a paella, and the mighty EU questionnaires that would stop Whatsapp acquisition by Facebook?

Tuesday’s Daily Brief: Libya civil war, African displacement, global trade tensions, terrorists’ children ‘secretly detained’, and more

A Sting Exclusive: “Youth voice must be heard in climate change negotiations!”, Bérénice Jond Board Member of European Youth Forum demands from Brussels

A male gynecologist in Iraq: red line violated

Six months into DR Congo’s deadliest Ebola outbreak, top UN official praises ‘brave’ response effort

10 Downing street: Another desperate attempt to unite Britain on Brexit

Further reforms in Sweden can drive growth, competitiveness and social cohesion

Draghi joined Macron in telling Germany how Eurozone must be reformed

Preparing Africa for ravages of climate change ‘cannot be an afterthought’ – COP24

MEPs wants to increase research funding to €120 billion in 2021-2027

Prospect of a nuclear war ‘higher than it has been in generations’, warns UN

A strong European Union is a united European Union

Commission’s action plan: financial world mandatory links to environmental targets

EU Commission accuses Germany of obstructing growth and the banking union

Royal Navy to unveil future surveillance and reconnaissance requirements next February in Rome

MEPs agree on future regional and cohesion funding

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

‘Refrain from violence’ UN chief urges, as presidential election result is announced in DR Congo

2018 ‘terrifying’ for Yemenis but ultimately a ‘year for hope’ says UN Special Envoy

UN urges ‘maximum restraint’ as Israel-Hamas tensions rise over rocket attack

The Italian crisis may act as a catalyst for less austerity

China’s cities are rapidly becoming more competitive. Here’s why

The global liberal order is in trouble – can it be salvaged, or will it be replaced?

Scotland in United Kingdom: It’s either the end or the beginning of the end

Eurozone: Sovereign debt decreases for the first time since 2007

Destroying nuclear waste to create clean energy? It can be done

How smart farming is helping Brazil feed the world

Rising insecurity in Central Africa Republic threatens wider region, Security Council told

MEPs demand Bulgaria’s and Romania’s swift accession to Schengen area

EU to relocate 40,000 migrants across the bloc: first step of a long due substantial reform?

UN-backed intercultural dialogue forum urged to keep working to ‘bridge gap between the like-minded’

Immigration crisis at its very worst: EU to outsource rescue business to North Africa?

A sterilised EMU may lead to a break up of Eurozone

Africa-Europe Alliance: European Commission committed to a sustainable African agri-food sector

How dearly will Germany pay for the Volkswagen emissions rigging scandal

European Youth Forum celebrates 20 years of fighting for youth rights

Venezuela: Parliament recognises Guaidó, urges EU to follow suit

Agreement reached on new EU measures to prevent electricity blackouts

Children are so hungry in one British town they are eating from bins

EU-U.S. Trade Talks: European Commission presents draft negotiating mandates

To Brexit, or not to Brexit…rather not: 10 Downing Street, London

Why EU’s working and unemployed millions remain uncertain or even desperate about their future

UPDATED: Thousands flee fighting around Libyan capital as Guterres condemns escalation, urges ‘immediate halt’ to all military operations

These are the 10 most in-demand skills of 2019, according to LinkedIn

Business should be joyful – just ask the sports world

EU shapes its ambitious strategy on India

African continent ‘an example of solidarity’ towards migrants and refugees: UN chief

A new world that demands new doctors in the fourth industrial revolution

Global economy to see ‘steady’ growth of three per cent in 2019 despite risks, says UN

Worth going ‘extra mile’ for a new Syrian constitution, UN envoy urges

The world’s e-waste is a huge problem. It’s also a golden opportunity

Resolving banks with depositors’ money?

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