TEHRAN (Iran News) – The eurozone economy will slow down in 2020 for the third consecutive year, according to a Financial Times poll of economists, who forecast it will be held back by political instability, trade tensions, and disruption in the auto industry. The European Central Bank (ECB) expects the eurozone economy to grow 1.1 […]
TEHRAN (Iran News) – The eurozone economy will slow down in 2020 for the third consecutive year, according to a Financial Times poll of economists, who forecast it will be held back by political instability, trade tensions, and disruption in the auto industry.
The European Central Bank (ECB) expects the eurozone economy to grow 1.1 percent this year in 2020, down from 1.2 percent in 2019, 1.8 percent in 2018 and 2.4 percent in 2017. But the 34 economists polled by the FT were more pessimistic, forecasting on average that growth would dip below one percent this year — the eurozone’s slowest rate for seven years, FT reported.
Their forecasts ranged from zero growth, at the most pessimistic, to 1.5 percent, at the most optimistic.
“With no end to global trade uncertainty insight, the tug of war between global investment headwinds and pockets of domestic resilience, underpinned by easy ECB policy, will continue to make for uncomfortable eurozone GDP readings,” said Lena Komileva, chief economist at G+ Economics.
A further eurozone slowdown could put pressure on Christine Lagarde, the ECB’s new president, to consider additional monetary policy easing. It is also likely to prompt more calls for governments with stronger financial positions — such as Germany and the Netherlands — to embark on a fiscal stimulus.
The ECB injected a sizeable wave of cheap money into the economy in September when it cut interest rates further into negative territory and restarted its €2.6 trillion bond-buying program in response to signs of sliding growth and inflation. However, with concern mounting about the negative side effects of its unconventional monetary policy, some economists fear the central bank could run out of ammunition to counter any further slowdown.
Despite the weakening economic performance, most of the economists polled by the FT expect the ECB to hold back from the further loosening of monetary policy and think Germany is unlikely to yield to pressure for a significant fiscal stimulus.
“Our baseline is the continuation of mediocrity in the absence of a strong rebound in world demand, the exhaustion of the monetary stimulus and the lack of decisive fiscal support,” said Gilles Moec, chief economist at French insurer Axa.
Of the 34 economists polled, only nine expect a further cut in interest rates this year, while 24 expect no change and one expects the central bank to raise rates. Half of them expect the ECB to maintain its program of buying €20 billion of bonds a month throughout the year, while 10 expect it to be either scaled back or halted and only six expect it to be expanded.
Lucrezia Reichlin, an economics professor at the London Business School, said the biggest risks to the eurozone economy were “trade-related risks from both the US/China and Brexit”. She added that ‘political risks’ in Italy could also cause problems.
Two-thirds of the economists surveyed said they doubted that calls by Ms. Lagarde and others for Germany and the Netherlands to launch a sizeable fiscal stimulus would be successful, even though the vast majority of economists agreed with her.
“The trend of the eurozone in the rate of growth is very low due to poor productivity and dismal demography, so cyclical downturns easily lead to stagnation,” said Philippe Legrain, visiting senior fellow at the London School of Economics. “In addition, monetary policy can’t do much more, while a fiscal stimulus is likely to be too little, too late.”
The ECB estimates that eurozone inflation fell last year to 1.2 percent — down from 1.8 percent in 2018. A small majority of economists polled by the FT forecast inflation will dip again this year, making it even further below the ECB’s objective of close to two percent.
Industrial output contracted sharply in the eurozone last year, but the domestically focused services sector proved resilient. Paul Diggle, senior economist at UK fund manager Aberdeen Standard Investments, said this could reverse in 2020.
“Manufacturing will bottom and rebound slightly,” he said. “But services and the labor market will slow further.”
- source : Iran Daily, Irannews