Published On: Wed, Aug 21st, 2019

EU news: Eurozone inflation nosedive sparks recession fears | World | News

Hitting its lowest level since 2016, inflation in the Eurozone fell to one percent in July, according to data from the European Union’s statistics agency, Eurostat. Inflation in the 19-nation euro currency area plunged by more than one point compared to the same period last year (2.2 percent), sliding yet further away from the European Central Bank’s two percent target. The latest Eurostat forecast has piled pressure on the ECB to relaunch its economic stimulus programme next month.

Fears of a no-deal Brexit and trade tensions between the EU, US and China have weighed heavily on the bloc’s export-driven economies.

Germany, the EU’s economic powerhouse, could soon be plunged into a deep recession the Bundesbank warned on Monday.

Jens Weidmann, Germany’s central banker, described the slowdown as a slump, adding: “International trade disputes and Brexit are important reasons behind this.”

Observers are now expecting a “big bang” from the ECB in September, including a possible cut in rates, to help fix ailing economies.

Madig Muller, Estonia’s central bank governor, insisted the ECB “has yet to stimulate the economy” as inflation misses the bank’s target.

Olli Rehn, Finland’s central banker, called for “substantial and sufficient” bond purchases as well as interest rate cuts.

“It is important that we come up with a significant and impactful policy package in September,” he said.

The ECB ended its quantitive easing stimulus programme in December last year, during which the bank bought public bonds on the secondary market to help growth and counter Eurozone deflation.

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“It is hard to see a shirt of sufficient magnitude to arrest the downward momentum in the region.

“The benefit of rates cuts will be limited without a credible signal that the ECB is willing to move far further into negative territory – to minus 100 basis points or lower.”

Trade between Eurozone members has fallen at its fastest rate in over six years, fuelling fears that international trade tensions are having repercussions on European exports.

The value of the intra-Eurozone trade slumped 6.6 percent in June compared to the same month last year, the worst performance since March 2013.

Economist Angel Talavera, of Oxford Economics, said: “With intra-Eurozone trade representing more than half of total exports for most European countries, this is a serious reason for concern and it threatens to become a vicious cycle.”

ECB boss Mario Draghi last month hinted that a new stimulus package would be rolled out across the single currency bloc amid growing fears.

He said the bank had considered the package “to ensure that financial conditions remain very favourable and support the euro areas expansion”.

The Eurozone has recently suffered from the “softening global growth dynamics and weak international trade”, he added.

Mr Draghi will be replaced by Christine Lagarde, the French former head of the International Monetary Fund in October.

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