European Central Bank cuts growth, inflation forecasts

Posted March 11, 2019

This week, China cut its goal for economic expansion, the Bank of Canada dialed back its expectations for policy tightening and the OECD lowered its global outlook. Fears over China's economy are mounting today after ecostats showed a worrying decline in exports. "You try to be proactive rather than reactive".

Draghi cited "factors. mostly of external source", including "the threat of protectionism" and "geopolitical considerations", and analysts pointed out that the eurozone was in a precarious position.

With the Federal Reserve's monetary pivot already priced in, some investors are wondering if the dollar's recent gains could become more sustained. It has signaled a pause in its rate increases and said it's ready to slow the reduction of bond holdings purchased under earlier stimulus efforts. Weak Chinese trade data added to the negativity.

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Carsten Brzeski, chief economist at the bank ING Germany, said the measures came surprisingly early.

As Mario Blascak, FXStreet's own European Chief Analyst writes: "The Brexit re-negotiations are taking place in Brussels with the European Union said to make a new offer to the United Kingdom on Brexit backstop that is likely to fall short of the United Kingdom demands".

The ECB's actions highlight how quickly the fortunes of the European and global economy have shifted.

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The ECB's board did lower its growth projections to 1.1% for 2019, down from 1.7% projected in December 2018. The movement follows the news that the USA trade deficit widened to a 10-year high in 2018, despite President Trump's efforts to narrow it.

The announcement comes only three months after the end of the ECB's unprecedented €2.6 trillion bond-buying programme. The eurozone economy grew by a weak 0.2 percent in the fourth quarter of past year, down from 0.4 percent in the first two quarters. It was down about 4.7% for the week, its biggest percentage decline since end November. That would be a slowdown from last year's 3.6 percent.

With Thursday's decision, the ECB's rate on bank overnight deposits, which is now its primary interest rate tool, remains at -0.40 percent.

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The Pound New Zealand Dollar (GBP/NZD) exchange rate is also mounting a tentative recovery this morning on the back of the latest Chinese trade figures, although ongoing Brexit angst sees the pairing remain well below its best level.