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Death (To Growth Forecasts) By 1,000 Cuts?


Image source: Madeleine Stuart / Finimize

What's going on?

On Thursday, the European Central Bank (ECB) made a small cut to its economic growth expectations for the eurozone over the next couple of years.

What does this mean?

The ECB has a great view of what’s going on in all of the eurozone’s economies. From this idyllic vantage point, it sets growth forecasts to help European governments and companies alike plan how best to balance their books.

In its latest assessment, the ECB doesn’t see any big trend changes, effectively saying that Europe’s doing okay at the moment (tweet this). But it lowered growth expectations for 2018 and 2019 by 0.1% because of some countries’ growth looking volatile (ciao, Italy! Χαίρετε, Greece!) and worries about lower growth from foreign trade (because of potential trade wars).

Why should I care?

For markets: Europe’s still okay, for now.

The Euro Stoxx 50 (one of Europe’s major stock indices) rose on Thursday, despite reduced growth expectations. Things are still going okay for Europe at the moment – Germany’s doing well and Europe’s still likely to increase interest rates next year. But there’s a lot of uncertainty as countries are handing in budgets, and the chance of a painful Brexit is increasing according to the Bank of England. Some investors are worried that these risks could become real and stifle European growth.

The bigger picture: Emerging markets are getting a bit of respite.

After roughly a 40% fall since the start of the year, the Turkish lira was clucking loud and proud on Thursday. It climbed in value by more than 5% after the Turkish central bank raised interest rates (this makes Turkish lira more valuable to investors as they’d receive more interest on their cash in the bank). Companies exposed to Turkey (like European banks with Turkish debt) all rose on the news. Three cheers for Europe!

Originally posted as part of the Finimize daily email.

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