The European Central Bank on Thursday lowered its growth forecast for the euro area for this year and next as the bank’s chief Mario Draghi again warned about the risks from the rising protectionism.
Earlier in the day, the Governing Council left its interest rates, asset purchases and forward guidance unchanged.
The bank confirmed that the asset purchases will be halved to EUR 15 billion this month and plan to wind them down at the end of this year “subject to incoming data confirming our medium-term inflation outlook.”
“Uncertainties relating to rising protectionism, vulnerabilities in emerging markets and financial market volatility have gained more prominence recently,” Draghi said in the introductory statement.
“Significant monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term.”
During the post-decision press conference, Draghi announced the latest Eurozone macroeconomic projections from the ECB Staff that revealed a downgrade to growth projections for this year and next, which was mainly due to the possible weaker contribution from foreign demand. Inflation outlook was left unchanged.
The growth forecast for this year was lowered to 2 percent from 2.1 percent. The projection for next year was lowered to 1.8 percent from 1.9 percent. The outlook for 2020 was maintained at 1.7 percent.
Risks surrounding the euro area growth outlook are assessed as broadly balanced, Draghi said.
“Uncertainty around the inflation outlook is receding,” Draghi said. The bank maintained its inflation projection for this year, next and 2020 at 1.7 percent.
The bank expects core inflation to pick up towards the end of the year and thereafter to increase gradually.
Draghi expressed concern over the high government debt in some countries and urged them to rebuild fiscal buffers. He stressed that full adherence to the Stability and Growth Pact is critical for safeguarding sound fiscal positions.
Regarding the health of the financial system 10 year since the global financial crisis, Draghi said banks are stronger today, but there was no room for complacence, especially as lots of business has migrated from banks to non-banks.