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Odds of recession in Euro area remain low, according to Central Bank head

lundi, 25 mars, 2019 - 12:50

The President of the European Central Bank (ECB), Mario Draghi, has told EU leaders that the probability of recession in the EU is “quite low”, despite the weakness in economic indicators and slowdown in global trade.

“We observe a prolonged weakness and generalized uncertainty, but the recession is still low,” Draghi told the leaders on the second day of their European summit.

Draghi attributed the situation to the significant slowdown in international trade, but noted that, so far, the effect on domestic demand, consumption and investment, is “limited.”

He argued that this situation should be maintained. In early March, the ECB postponed its inception into its eighty-first years until 2020, due to the economic weakening, and announced new injections of liquidity until March 2021 to encourage Banks lend to businesses and households.

Turning to Brexit, Draghi said that the impact on the eurozone economy in general should be limited, even in a scenario where the UK leaves the bloc without an agreement, because the remaining 27 national government should be prepared for this possible outcome.

The ECB considers that both central banks and European authorities are ready for this scenario, but warns, as it has done in recent months, that the private sector has yet to accelerate preparations.

Draghi also noted that some member states will be more impacted by Brexit than others. Although he did not meet the expectations of the meeting it is expected that

Germany would also be among the most impacted countries, given that it is close to zero growth after its economy contracted by 0.2 percent in the third quarter of 2018.

This puts it in a more fragile situation than other countries with higher growth rates such as Spain.

 

 

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