Draghi's "Big Bazooka" losing steam as Standard & Poor's slashes Eurozone growth forecasts

 
Jake Cordell
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Eurozone growth forecasts
Standard and Poor's has slashed its growth forecast for the eurozone to 1.5 per cent in 2016 (Source: Getty)

Standard and Poor’s (S&P) has slashed its growth forecasts for the Eurozone, saying that low growth and weak inflation looks set to stalk the continent for the foreseeable future.

The ratings agency reckons the Eurozone will expand by a miserly 1.5 per cent this year, down from its previous forecast, made just four months ago, of 1.8 per cent. Growth will also remain lacklustre into 2017, according to S&P, which is predicting expansion of just 1.6 per cent.

In a bid to kick-start growth, Mario Draghi, president of the European Central Bank (ECB) recently reloaded what economic wonks have dubbed his “big bazooka” - the ECB's bond-buying quantitative easing programme and experiment with negative interest rates.

The central bank will now snap up €80bn (£63bn) of government and corporate bonds a month, and will continue to do so until at least March 2017, while its headline interest rate plunged to minus 0.4.

Concerns have been raised, however, that Draghi is running out of ammunition in his attempt to boost inflation. S&P expects prices to tick up just 0.4 per cent this year and 1.5 per cent next year - well off European Central Bank’s two per cent target.

Jean-Michel Six, chief economist at Standard and Poor’s, joined Draghi in pointing the finger at national governments for letting monetary policy do the legwork of stoking growth.

“Central bank actions are having a diminishing impact on inflation and growth prospects, partly because some of the battles they’re trying to fight are beyond their reach (low commodity prices, erratic swings in emerging markets currencies), and partly because they lack ‘air support’ from governments, such as structural reforms to boost competitiveness and the efficiency of labour markets,” he said.

France recently attempted to pass a series of reforms to liberalise its economy, but was forced to change course following public protests at attempts to water down protections for employees.

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