Eurozone WARNING: Mario Draghi warns of increased growth outlook uncertainty

The President of the European Central Bank predicted a “squeeze on margins” could occur should businesses become rattled about the eurozone growth and inflation outlook.

Eurozone growth skidded to its slowest rate in more than two years in October, with the economy gripped by escalating US-China trade war fears and an ongoing spat between Italy and EU chiefs over Rome’s budget.

The eurozone felt the brunt of growing global tensions as momentum dropped and business growth decelerated faster than anticipated as the final quarter of 2018 began.

Mr Draghi said today inflation may rise more slowly than previously expected but saw “no reason” to brace for the economy of the eurozone to grind to a halt.

But he warned: “If firms start to become more uncertain about the growth and inflation outlook, the squeeze on margins could prove more persistent.

“This would affect the speed with which underlying inflation picks up and therefore the inflation path that we expect to see in the quarters ahead.

“Uncertainties surrounding the medium-term outlook have increased.”

The ECB still saw risks to the growth outlook as broadly balanced, Mr Draghi said, but it would reassess the situation in December when new growth and inflation forecasts become available.

According to a flash composite purchasing managers’ index (PMI) from IHS Markit, eurozone PMI slowed in October to 52.7, down from 54.1 in September and marking the slowest level of growth recorded in 25 months.

Germany and France led the decline, with Berlin rattled by a slowdown in manufacturing and services industry growth and Paris hit by a loss of confidence in its manufacturing sector.

The ECB left interest rates at a record low as the central bank confirmed plans to stay on course to claw back stimulus, something which Mr Draghi said he is still on course for today.

The group reaffirmed its €2.6 trillion ($2.97 trillion) asset purchase scheme will end this year and rates could rise after next summer.

Mr Draghi said: “If financial or liquidity conditions should tighten unduly or if the inflation outlook should deteriorate, our reaction function is well defined.

“This should in turn be reflected in an adjustment in the expected path of future interest rates.”

The International Monetary Fund this month predicted eurozone growth to slow as the outlook for a number of big global economies faces a bleak outlook.

The ECB said in a statement: ”The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019.”

Meanwhile, the IMF described how “global financial conditions have started to tighten” as they blamed higher US interest rates, a stronger US dollar, and financial market volatility for hammering emerging markets and developing economies.

source: express.co.uk