The European Central Bank (ECB) has upgraded its growth and inflation forecasts for this year, but warned of downside risks related to the global economy and the so-called “Brexit” vote in the U.K.
The bank now sees growth of 1.6 percent for 2016, up from a 1.4 percent forecast in March. It left its growth forecast for 2017 unchanged and trimmed its forecast for 2018 to 1.8 percent. Inflation is seen at 0.2 percent compared to a previous forecast of 0.1 percent. Inflation is expected to pick up in the second half of 2016 and recover in 2017 and 2018, ECB President Mario Draghi said at a press conference.
The projections come after the bank left interest rates on hold on Thursday as expected.
“With the latest policy measures only announced in March and some, like the corporate bond purchases and new TLTROs, not even implemented yet, the Governing Council is firmly in wait and see mode for now,” Jonathan Loynes, chief European economist at Capital Economics said in a note to clients.
President Mario Draghi said he expected the economic recovery to continue at a “moderate but steady pace”
The ECB left the rate on bank overnight deposits at -0.4 percent, the main refinancing rate at 0.00 percent and the rate on the marginal lending facility at 0.25 percent.
Earlier on Thursday, Gertrude Tumpel-Gugerell, former vice-governor of the Austrian National Bank and former executive board member of the ECB, told CNBC Thursday that the recovery in the region was “on track” and that the central bank had “contributed to that.”
“Low interest rates encourage lending by the banks and of course the banks would like to see demand for lending grow but also sentiment indicators which came out recently are pointing in the right direction,” she said.
She noted that a tentative rise in oil prices was helping inflation rates in the euro zone but that “we don’t see the oil price increase as permanent yet. We don’t know how long it’s going to last but for the moment it’s helping the inflation rate to come back.”
A return for Greece?
Analysts will also want to know when Greece will be able to rejoin the central bank’s refinancing operations following the successful conclusion of its bailout review. Back in February 2015, the ECB stopped accepting Greek government bonds as collateral for loans to the country’s struggling banks in a bid to force the country to commit to its then-second bailout program.
Unnamed sources told Reuters on Wednesday that Greek banks were unlikely to regain access to cheap funding, however.
The ECB’s latest meeting comes amid upheaval in France over labor reforms that have been encouraged by the central bank. Despite widespread workers’ strikes that have brought the country to a standstill, European Commission Vice President Jyrki Katainen told CNBC earlier on Thursday that the French government had to see reforms through.
“The world has changed around France and that is why it, amongst the other member states, must be reformed and the best way to create jobs for young people is to make the labor market better suited to the needs of the labor market and business sector in France.”
“France is one of the countries which has wonderful industrial bases but its economic potential has not grown as much as fast as many other countries have so France must be reformed.”
Source: The Financial Times
