Forecasters said the United Kingdom vote would hit eurozone growth by cutting exports to the United Kingdom, hurt investment in the eurozone and create financial market volatility which would lead to “negative repercussions for investment and consumption”.
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Respondents expect growth in 2017 to be 1.4%, a 0.2 percentage point cut from the second-quarter forecast.
“We should take these estimates with some grain of caution”. Even so, after calming market volatility with pledges of liquidity, officials have bought themselves time to judge how much further they can push their unprecedented easing, especially in the absence of more support from government policies. “What is clear is that markets have created in a fairly resilient fashion”.
Draghi could indicate the bank’s readiness to extend its bond purchase stimulus of 80 billion euros ($88 billion) beyond March 2017.
We think the most likely option for the European Central Bank is to extend QE beyond March 2017, possibly by 6-9 months.
But such generosity in monetary policy is bumping up against limits.
“Monetary policy is semi-supportive of economic activity and is focused on maintaining price stability”.
“We wouldn’t consider it a risk but it has to be addressed”. After many years of QE, the economy is not coming back with a clear comparison of a steady U.S. economy.
Draghi said it was up to the EU’s executive Commission to apply the rules. Tim Graff, the head of macro strategy for Europe at State Street, the financial services firm, said that they were “surprised by the relatively upbeat take on current events and their impact on inflation and inflation expectations”.
But Draghi also noted that growth and inflation were both moving along the path projected in June so more evidence, including fresh staff projections in September, were needed before any decision.
“Following the United Kingdom referendum on European Union membership, our assessment is that euro area financial markets have weathered the spike in uncertainty and volatility with encouraging resilience”. The currency had declined 3.3 per cent from the United Kingdom referendum vote to Wednesday, amid speculation that Mr Draghi would ease monetary policy further as they struggle to move inflation towards 2 per cent.
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Such a measure could prove highly unpopular, with citizens in many countries still angry at having to “bail out” banks following the global financial crisis of 2007-08.
