EU Central Bank Cut Growth Estimates, Euro Slides

After the European Central Bank announced a slew of market friendly measures to infuse the economy with cash and brighten business sentiment the euro declined significantly against the dollar. The central bank also slashed growth forecast for this year from 1.1% from previous guidance value of 1.7% declared in December. ECB president Mario Draghi stated that economic data showed only moderation in growth and the situation is likely to persist due to uncertainty of geopolitical factors, protectionist policy adopted by few economies and vulnerabilities in emerging markets that appears to be affecting economic sentiment of the world.

The EU member region has been overshadowed by several factors like recent Italian political turmoil that has plunged its economy into recession and the Brexit issue that is looming over the horizon. Concerns are also being raised about slowdown in China which relies heavily on exports and weak manufacturing activity data from Germany which is regarded as the chief growth engine of the region. Impact of these factors stated Draghi seem to be lasting too long and due to this outlook of near term growth is likely to be slow.

Due to these disappointing economic conditions the ECB reduced its inflation forecast for this year which will likely to be at 1.2% as the bank is taking active measures to keep inflation below 2%. Interest rates of ECB are also at a record low and are likely to remain at this point until year end and it has issued fresh loans to banks in euro region to boost economy.  Nations that share the single currency system now no longer need to be part of ECB’s bond buying program. The ECB is also likely to introduce more stimulus programs for meeting issues of weak growth and external risk. These steps will help to bring exchange rate of euro in same level as yield from European government bonds.