Draghi blames drop in growth on global economic slowdown
Economic growth in the Eurozone has now slowed to its lowest point since 2014. Purchase manager index forecasts do not make pleasant reading either which points toward further falls in business activity in 2019.Forecasts suggests growth has the potential to drop below 1.5%.
The President of the European Central Bank (ECB), Mario Draghi has played down talks of a recession blaming the economic downturn on exterior factors such as trade wars and a global economic slowdown. When recently questioned about the fall in GDP he said the following “the threat of protectionism, vulnerabilities in emerging markets and financial market volatility”.
He has attempted to ease investor concerns by stating the chance of a recession within the bloc is low and the labour market is the strongest it has been in years. Eurozone unemployment currently stands at 7.9% the lowest in over a decade.
I do not share his optimism. There is still the problems in Greece which is seemingly being swept under the carpet, Italian debt is now second only to Greece and the engine room of the Eurozone, Germany has just narrowly avoided a recession.
It is also yet to be seen how the Eurozone will cope without Quantitative Easing (QE). QE is essentially pumping money into an economy in order to stimulate growth. Monthly increments were at one point above €60mln, with the ECB putting an end to QE in December it will be interesting to see how the bloc will cope with growth at such a low level already.
If it were not for Brexit I think Sterling could be making impressive gains against the Euro. Looking at GBP/EUR in detail the fragility of the pound is again being displayed , dropping form an 18 month high of 1.1602 to the low 1.14s today. I am afraid Theresa May could have a very tough time getting any concessions from Brussels. Jean Claude Junker, European Commission President has stated on serval occasions there will be no changes made to the current Brexit deal and with Morgan Stanley suggesting there is less than a 5% of a no deal scenario May has no ammunition in talks.
I think we could see further losses for Sterling despite the problems in the Eurozone.
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