Euro zone lost some growth momentum but oil prices help - ECB | Eurasia Diary -

25 May, Saturday

Euro zone lost some growth momentum but oil prices help - ECB

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The euro zone has lost some growth momentum and headwinds are becoming increasingly noticeable but the recent fall in oil prices is positive for growth, European Central Bank chief economist Peter Praet said on Monday.

The ECB is slowly dialing back stimulus and plans to end a 2.6 trillion euro bond purchase scheme next month, raising some concern that it is cutting support just as the real economy is weakening.

Praet acknowledged the slowdown but argued that the economy is still expanding, inflation pressures are building, the oil price fall would help growth and many of the growth risks are outside the ECB’s control because they are related to global politics.

“Factors related to protectionism, financial market volatility and vulnerabilities in emerging markets are creating headwinds that are becoming increasingly noticeable,” Praet told a conference.

“Surveys of euro area business activity and sentiment indicators have softened perceptibly relative to their earlier highs, although they remain in expansionary territory and are still above long-term averages for most sectors and countries,” he added.

Brent crude LCOc1 has fallen to $60 a barrel from almost $87 in early October, a drag on inflation but a boost to growth as the euro zone is a net importer of energy.

He also argued that the ECB is not removing support by ending bond purchases but simply ‘rotating’ instruments from unconventional to more traditional tools.

Even when bond buys end, the ECB will continue to reinvest cash from maturing securities for an ‘extended period’ of time, a phrasing markets estimate will be around 2 to 3 years.

Praet declined to discuss a more precise definition for this time frame but said that the ECB would have to do this at its next meeting on Dec 13 and may say more about how long reinvestments would go on.


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