ECB President Mario Draghi just hit Europe with a bunch of downgrades and warnings in his first press conference since the summer break.
Draghi says the ECB monetary policy committee are seeing “continued, though somewhat weaker, economic recovery” and there are “renewed downsides for growth and inflation.”
Those downsides are China’s economy and markets going haywire, falling oil prices, and the knock-on effect of both of those phenomenons on emerging markets.
The GDP growth forecast for Europe in 2016 was cut to 1.7%, from 1.9%, while the forecast for inflation this year dropped from 0.3% to just 0.1%.
Europe is once again facing deflationary pressure after Chinese recent currency and stock market weakness, which has led investors to pile into the “safe haven” euro. The knock on effect of a strong euro is exports are more expensive, meaning there’s less money coming into countries.
With less money to go around, price rises are slowing — and could even slip to deflation. As a result, analysts thought Draghi could extend or ramp up the programme of quantitative easing in Europe, first introduced 6 months ago.
Draghi’s stopped short of this, saying it’s too “premature” to take action and the risks could be “transitory”. But he says the ECB will use “all the instruments” at its disposal.
He says the ECB will fully implement its €60 billion-a-month asset buying allowance, running through to 2016 “or beyond if necessary.”
Draghi said: “The guiding council wanted to emphasis our willingness to act, our capacity to act, and our ability to act.”
The central bank will consider “adjusting the size, composition, and duration” of its quantitative easing programme, Draghi says.
He may not need to — his dovish comments alone sent the euro diving as he spoke.
Draghi’s press conference is the second major announcement from the ECB today. The central bank has already announced it’s holding its bank lending rate steady at 0.05%.
The ECB’s bleak outlook for Europe’s economy contrasts with the positive PMI data we got earlier in the day. Europe beat forecasts for growth in August, thanks to a strong performance from Germany.