During September, the European Central Bank (ECB) announced another programme of economic stimulus measures designed to shore up the eurozone’s faltering economy. The ECB will resume quantitative easing measures from 1 November, implementing asset purchases of €20 billion per month.
- Germany’s manufacturing sector continued to weaken
- Business confidence continued to deteriorate
- The ECB downgraded its economic growth forecasts for the eurozone
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During September, the European Central Bank (ECB) announced another programme of economic stimulus measures designed to shore up the eurozone’s faltering economy. The ECB will resume quantitative easing measures from 1 November, implementing asset purchases of €20 billion per month. This programme is set to continue for “as long as necessary” to allow the ECB’s key inflation rate to reach its target of “below, but close to, 2%”. The deposit facility rate – paid by banks on overnight deposits at the ECB – was further reduced from -0.4% to –0.5%.
“Mr Draghi warned that the likelihood of a hard Brexit had increased compared with four months ago”
ECB President Mario Draghi warned that inflation is likely to fall before it starts to rise towards the end of the year, and cautioned that the region is being adversely affected by the “prevailing weakness of international trade in an environment of prolonged global uncertainties”. The ECB downgraded its predictions for economic growth in the eurozone from 1.2% to 1.1% in 2019, and from 1.4% to 1.2% in 2020.
US President Donald Trump tweeted that the ECB was “trying, and succeeding, in depreciating the euro against the VERY strong dollar, hurting US exports”, implying that the ECB was manipulating its currency. However, Mr Draghi responded: “We have a mandate, we pursue price stability and we don’t target exchange rates, period”. During September, the Dax Index rose by 4.1% while the CAC 40 Index climbed by 3.6%.
In an interview with the Financial Times, Mr Draghi warned that the likelihood of a hard Brexit had increased compared with four months ago. Mr Draghi will be replaced by former Managing Director of the International Monetary Fund (IMF), Christine Lagarde, on 1 November.
The contraction in Germany’s manufacturing sector accelerated during September, fuelling concerns over prospects for the eurozone’s economic outlook. According to IHS Markit, the region’s economy came “close to stalling” during the month as new orders for goods and services dropped at their fastest rate since June 2013.
Confidence amongst businesses in the eurozone fell to its lowest level four years during September, dragged down by an increasingly pessimistic outlook in the manufacturing sector. Although sentiment amongst services companies is holding up reasonably well, optimism amongst manufacturing firms has been undermined by fears over the outlook for Germany – the eurozone’s largest economy – and wider concerns about the impact of the US/China trade wars and ongoing uncertainty over Brexit.
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