The European Central Bank (ECB) has increased its eurozone economic growth forecasts but kept interest rates unchanged. Growth in the eurozone accelerated during the first quarter of 2017 as the risks surrounding the zone’s growth outlook are considered to be broadly balanced.
The ECB increased growth forecasts for 2017 to be 1.9 per cent compared to March’s forecast of 1.8 per cent. The outlook for 2018 was raised to 1.8 per cent from 1.7 per cent and growth projection for 2019 was notched up to 1.7 per cent from 1.6 per cent.
The 2017 inflation outlook was reduced to 1.5 per cent from 1.7 per cent and for 2018, inflation rate projections were trimmed to 1.3 per cent from 1.6 per cent. The forecast for 2019 was cut to 1.6 per cent from 1.7 per cent. ECB president Mario Draghi said the downgrade mainly reflected lower oil prices.
Meanwhile, the World Bank has maintained its forecast for global growth in 2017 and 2018 at 2.7 per cent and 2.9 per cent respectively, due to improvement in manufacturing, trade, market confidence and commodity prices. Eurozone and Chinese business activity remained strong in May, while activity in Japan’s service sector hit a two-year high. The bank said recovery is “fragile” as talks of protectionism are raising concerns.
Surveys showed that China’s services sector grew at the fastest rate in four months, while activity in Japan’s services sector expanded at the fastest pace in almost two years. Global growth is sustained by stronger demand from the main advanced economies, increased trade flows with China and recovery from weak demand from commodity exporters.
Finally credit rating agency Standard & Poor’s (S&P) maintained the sovereign ratings of the US at ‘AA+’ with a ‘stable’ outlook. S&P noted that the diversified and resilient economy, extensive economic policy flexibility and unique status as the issuer of the world’s leading reserve currency are its credit strengths. Nonetheless, the rating agency said that high general government debt, relatively short-term-oriented policy-making, and uncertainty about policy formulation constrain the ratings. The net general government debt burden in relation to GDP remains twice as large as its 2007 level, S&P noted.
This report was compiled by Bank of Valletta for general information purposes only.