ECB cuts European growth forecasts

Emma Haslett
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The ECB has previously stated plans to increase its balance sheet by "up to" €1 trillion (Source: Getty)

The European Central Bank (ECB) has slashed its forecasts for European growth, saying it now expects GDP in the region to rise by just one per cent next year, down from 1.6 per cent.

It also cut forecasts for this year to 0.8 per cent, from 0.9 per cent, while growth in 2016 will hit 1.6 per cent, down from 1.9 per cent. The Bank left its main interest rate at 0.05 per cent, while interest charged to banks on deposits also remained unchanged, at 0.2 per cent.

ECB chief Mario Draghi had been expected to drop hints suggesting the Bank will make a decision on full-blown quantitative easing through the purchase of sovereign bonds in January, but he stayed restrained.

Technical preparations have been stepped up for further measures which could be implemented in a timely manner, if needed.

Having said in November that the Bank would act "without delay" to raise inflation rates, which are currently languishing at 0.3 per cent, economists expect Draghi to announce plans for the ECB to increase its balance sheet by as much as €1 trillion (£785bn) next year.

Danea Kyriakopoulou, an economist at the Centre for Economics and Business Research, suggested the ECB's governing council may wish to see the effects of its second targeted long-term refinancing operation, due to be launched next week, before it commits to buying sovereign bonds.
Today’s announcement comes about two weeks after Draghi and his deputy, Vitor Constancio, sent strong signals that the central bank is prepared to engage in more aggressive stimulus measures such as the purchase of sovereign bonds if the economic outlook deteriorates further. However, others in the Governing Council have been less enthusiastic about further stimulus and would rather wait, to give recently launched measures a chance to work.

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