ECB loses confidence in Eurozone’s ability to return to growth

EPA-EFE//BORIS ROESSLER

ECB loses confidence in Eurozone’s ability to return to growth


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The euro dropped against all major reserve currencies on Tuesday, as members of the European Central Bank’s Governing Council are reportedly losing confidence in the ability of the Eurozone to return to growth.

A “significant minority” of the ECB’s Governing Council question official the accuracy of the ECB’s projection models, given a long track-record of downward revisions. Officially, the ECB’s growth projection is now 1.1%, down from 1.7% three months ago.

The ECB will not be hiking interest rates before 2020 as growth is decelerating in Germany, France, and Italy – Europe’s three largest economies.

In Germany, one in five jobs depends on the export of manufactured goods which means the economy is particularly exposed to the massive slowdown in the Chinese economy. China’s recently released economic data suggests that business confidence in China is trending slightly upwards amid signs of a resolution to an ongoing trade dispute with the United States.

There are, however, concerns in Germany about the health of the country’s economically vital car manufacturing industry due to the sharp drop in demand for Diesel-engine cars, Brexit, and slower demand in China and other emerging economies.

Germany narrowly avoided negative growth in the first quarter, while Italy is already in recession. France has outpaced Germany in manufacturing output, but services have been hit by the yellow vest movement.

Inflation is falling despite a surge in employment across the Eurozone, suggesting that retail and domestic demand will not able to maintain economic momentum in the second half of the year.

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