ZCZC
BCN-22
ECB-EUROZONE-BANKING-INFLATION
Trade war prompts ECB fears of longer slowdown
FRANKFURT AM MAIN, Feb 22, 2019 (BSS/AFP) – European Central Bank
policymakers’ view of the economic outlook clouded as trade conflicts slowed
the world economy, prompting fears of a longer eurozone soft patch, an
account of their January meeting showed Thursday.
“There were concerns among members about an increasing impact of trade
protectionism, and an escalation of trade conflicts, on the global outlook,”
according to the record.
Since January, there have been signs the United States’ trade battle with
China could be nearing a truce, but the threat of American tariffs on
European car imports — and a tough response from Brussels — has grown in
recent days.
Meanwhile International Monetary Fund chief Christine Lagarde warned this
month of a “storm” lowering over a global “economy that is growing more
slowly than we had anticipated.”
In the eurozone, “the observed slowdown… appeared to be deeper and more
broad-based than previously anticipated,” ECB governing council members said.
The committee was “unanimous about acknowledging the weaker momentum and
changing the balance of risk for growth” to negative, ECB President Mario
Draghi said following the meeting.
Since ending new purchases of government and corporate bonds in December,
the ECB has limited room to intervene in the eurozone economy.
Members agreed the 2.6-trillion-euro ($3.0 trillion) scheme, designed to
pump cash through the financial system and into the real economy of firms and
households, had served its purpose of lifting growth and avoiding deflation.
But at 1.4 percent in January, price growth remains short of the ECB
target of just below 2.0 percent.
And earlier growth-boosting moves by the central bank have left interest
rates stuck at historic lows at least until summer this year.
Next month’s meeting could see the ECB drop heavier hints about its next
steps, armed with new staff forecasts for growth and inflation.
Board member Benoit Couere said on Friday policymakers could ponder a new
round of long-term, low-interest loans to banks known as TLTROs, as previous
waves approach maturity.
Such cash influxes were used by the ECB to encourage growth in the wake of
the financial crisis.
However, “the situation in the eurozone does not look severe enough yet
for the ECB to announce any quick policy changes” next month, ING bank
economist Carsten Brzeski commented.
Elsewhere in the account, members highlighted domestic strength in the
bloc counterbalancing external risks, with rising employment and wages
favouring further growth and a pickup in inflation.
BSS/AFP/HR/1005