European Central Bank makes moves to boost struggling euro zone after growth forecast slashed

President Mario Draghi reveals growth forecast of just 1.1 per cent this year, down 0.6 percentage point from previous forecast in December

Central bank promises to keep record-low official interest rates on hold until at least the end of this year, several months longer than previous statements

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The euro fell for a fifth day, dropping 0.6 per cent to US$1.1234, while government bonds rose, pushing the German 10-year yield to the lowest since 2016. Photo: EPA

Published: 8:46am, 8 Mar 2019Updated: 10:38am, 8 Mar 2019

Europe’s central bank delivered a fresh round of monetary stimulus in a bid to shore up the weakening economy as it cut its growth forecast by the most since the advent of its quantitative-easing programme.

European Central Bank (ECB) president Mario Draghi said the euro-zone economy will now expand only 1.1 per cent this year, a drop of 0.6 percentage point from forecasts just three months ago. A package of help from new loans for banks to a longer pledge on record-low rates is intended to expand existing stimulus, he said.

“The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment,” said Draghi. “The risks surrounding the euro area growth outlook are still tilted to the downside.”

The euro fell for a fifth day, dropping 0.6 per cent to US$1.1234, while government bonds rose, pushing the German 10-year yield to the lowest since 2016.

Policymakers cannot solve problems related to protectionism and Brexit said European Central Bank president Mario Draghi. Thursday’s meeting was their last before the United Kingdom is set to leave the European Union on March 29. Photo: Bloomberg

But bank stocks dropped as the new loans will have less favourable terms than the ECB’s previous operation. There may also be concern about the ECB’s gloomy prognosis for the economy and the limited ammunition it has left if things worsen.

The ECB is reverting to more monetary support just three months after policymakers decided to end their bond-buying programme and hoped to start weaning the euro-area economy off its crisis-era stimulus. The export-dependent European economy buckled under the weight of trade tensions, a slowdown in China and the uncertainties around Brexit.