Forecasts for the euro area still deteriorates

10.07.2019 15:46|Daniel Kostecki

The fact that the condition of the euro area economy is not in the best form, we know not from today. Deepening collapse in the industrial sector, disastrous data from Germany or lack of prospects for rapid inflation growth meant that even the optimistically looking ECB head Mario Draghi had to admit that there is a chance for further stimulus of the euro area economy.

What is more, the horizon seems to lack the symptoms of improvement thanks to which the euro area economy could recover from the current slowdown, and inflation could accelerate. Concerns about the lack of recovery are also visible in the latest European Commission forecasts published today. The main reason for lowering forecasts is to be continuing tensions in international trade, which in turn may translate into increased pressure on the European Central Bank and loosening monetary policy. This, in turn, we can find out in two weeks, during the meeting of the ECB, where a decision to cut interest rates may take place or there may be hints about making such a decision in the future.

According to the quarterly forecasts of the European Commission, GDP for the euro area in 2020 is expected to be at 1.4 percent. The previous forecast assumed 1.5 percent. There is still a risk of an even lower result. Inflation, in turn, in 2019 and 2020 is expected to reach only 1.3 percent. The European Central Bank's goal is 2 percent. Pessimism in the euro area is also a consequence of poor data from Germany, where the risk of a recession increases. In addition, a more dovish approach to the monetary policy of the US Federal Reserve may also support the dovish decision of the ECB in the near future.

 

Daniel Kostecki, Chief Analyst Conotoxia Ltd.

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