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ECB forecasts

Image source: Andy Lidstone, Lori Howard, Stephen Mcsweeney - Shutterstock

What's going on?

On Thursday, the European Central Bank (ECB) lowered its economic growth forecasts for the eurozone yet again – and announced additional support for its 19 countries’ interwoven economies. (tweet this)

What does this mean?

The ECB now expects the world’s second-largest economy to grow 1.1% in 2019, rather than the 1.7% it predicted in December. That’s due in part to ongoing trade uncertainty hampering European growth. The ECB’s not the only pessimist in town: intergovernmental economic group the OECD slashed its global growth forecasts on Wednesday – and revised its own eurozone growth expectations even lower.

The ECB also announced it’d offer new cheap long-term loans to European banks. The hope is that this cash injection keeps banks lending, helping eurozone companies – and therefore the economy – to grow. Indeed, almost 10% of European manufacturing firms said cash constraints had restricted their production in December – twice as many as a year prior – according to research firm TS Lombard.

Why should I care?

For markets: It’s a waiting game.

Investors had expected the ECB to begin increasing eurozone interest rates later this year, but on Wednesday it said that rates would be on hold until at least 2020. Investors may applaud the ECB acting fast to help its faltering economy so soon after withdrawing previous market support. But they still turned tail on European and US stocks on Thursday, selling them in expectation of lower earnings growth ahead.

The bigger picture: Your move, China – oh, and America.

China is responsible for about a third of the eurozone economy – and part of the reason it’s suffered in recent months is weaker Chinese demand for its exports. The People’s Republic announced major tax cuts this week, which could help reinvigorate that demand somewhat. A US-China trade war resolution may help too, but perhaps not as much as Europeans might hope: any deal could well see China redirect spending from Europe to the US.

Originally posted as part of the Finimize daily email.

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