Brussels’ central bank slashes growth forecast

Tim Wallace
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THE EUROPEAN Central Bank (ECB) chopped back its growth forecasts for the Eurozone economies yesterday, raising the prospect of more interest rate cuts to try to revive the stagnant currency area.

ECB boss Mario Draghi now expects the economies to shrink by anywhere between 0.1 per cent and 0.9 per cent in 2013, before recovering at the end of the year to growth of between zero and two per cent next year. Both of those forecasts show a cut of 0.2 percentage points from previous predictions.

Draghi said the governing council had considered cutting interest rates, though the consensus opposed such a move this month. But he argued the ECB is looking for other policies to help improve sluggish growth and reduce the fragmentation of financial markets that is stopping the benefit of low interest rates from getting beyond the markets and into firms and households.

“It is quite clear that in a deteriorating economy with non-performing loans banks’ risk aversion goes up, further restricting lending,” Draghi said. “On that front we are thinking in 360 degrees.” And Draghi hinted that more easing is unlikely to send inflation through the roof.