Tags: Euro | Growth | Investment | European Central Bank

Euro-Area Growth Held Back by Investment Drop in 3rd Quarter

Friday, 05 December 2014 12:12 PM

Euro-area investment fell for a second quarter, holding back growth and underlining the weakness in the economy that prompted the European Central Bank to cut its forecasts.

Investment declined 0.2 percent in the three months through September after a 0.6 percent decline in the previous quarter, Eurostat, the European Union’s statistics office in Luxembourg, said. Gross domestic product increased 0.2 percent, matching an initial estimate published last month.

The data came a day after ECB President Mario Draghi said the outlook has worsened and that policy makers will assess early next year whether more stimulus, including quantitative easing, is needed. Manufacturing and services weakened in November, and the central bank now forecasts expansion of 1 percent next year, down from 1.6 percent previously.

“The ECB’s macro-economic assessment has become grimmer,” said Carsten Brzeski, chief economist at ING-DiBa AG in Frankfurt. “The scene is clearly set for QE.”

The GDP report showed exports from the euro area grew 0.8 percent after a 1.4 percent gain in the second quarter. Imports expanded 1.2 percent, down from 1.3 percent, and household consumption growth rose to 0.5 percent from 0.3 percent in the previous three months.

Inflation Outlook

After leaving interest rates unchanged, Draghi said ECB staff have “stepped up the technical preparations” for further measures if needed. If policy makers do see a need to combat a prolonged period of low inflation then “this would imply altering early next year the size, pace and composition of our measures,” he told reporters in Frankfurt.

The ECB’s Governing Council expects to consider a proposal for broad-based asset purchases including sovereign debt at its next monetary-policy meeting on Jan. 22, said two euro-area central-bank officials familiar with the deliberations.

The package for January, which hasn’t yet been designed, is envisaged as including various types of bonds while excluding equities, the euro-area central-bank officials said, asking not to be identified because the discussions are private. No decision on implementing QE has been taken yet and the composition of the program may be influenced by incoming data, they said. An ECB spokesman declined to comment.

Some ECB officials favor a government-bond purchase program exceeding 1 trillion euros ($1.23 trillion), German newspaper Frankfurter Allgemeine Zeitung reported, citing a person familiar with the matter. ECB simulations show such a plan could increase the inflation rate by as much as 0.8 percentage point, FAZ said.

Oil Vigilance

The central bank cut its forecast for 2016 GDP growth to 1.5 percent from 1.9 percent. It sees inflation of 0.5 percent this year and 0.7 percent next year, far off its goal of just below 2 percent. Draghi added that officials will be “particularly vigilant” on the effects of oil prices, whose recent declines couldn’t be factored into the latest forecasts.

“Europe is only one shock away from deflation and another recession,” Nouriel Roubini, chairman of Roubini Global Economics LLC, said on Bloomberg Television. “The ECB should have done quantitative easing already a year ago.”

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Euro-area investment fell for a second quarter, holding back growth and underlining the weakness in the economy that prompted the European Central Bank to cut its forecasts.
Euro, Growth, Investment, European Central Bank
Friday, 05 December 2014 12:12 PM
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