The European Central Bank last Thursday announced it would hold off on any interest rate hikes until December, moving away from the previous guidance that rates would start rising in October.

In a surprisingly pessimistic move, the ECB also downgraded the eurozone growth rate to 1.1 per cent this year, down from 1.7 per cent in the previous estimate.  Geopolitical risks, such as trade protectionism, were to blame for most of the adjustment, which is the lowest estimate since the Greek financial crises prior to 2014.

TLTROs (targeted longer-term refinancing operations) were reintroduced as the previous round of funding is about to end. These aim to support the funding of banks in the currency bloc.

The ECB’s overall stance is supportive of the view that a global slowdown will take place in 2019-2020.

In the meantime, the Organisation for Economic Co-operation and Development (OECD) has lowered its global economic forecasts for 2019 and 2020, following previous downgrades last November.

The OECD cut its global growth forecast to 3.3 per cent this year, down from the 3.5 per cent it predicted in November, which was itself a downgrade from a previous 3.7 per cent growth rate.

For 2020, global growth is expected to come in at 3.4 per cent, down from the previous estimate of 3.5 per cent.

The eurozone will take the biggest hit, according to the report, with Germany’s growth prospects being cut almost in half in 2019, from 1.6 per cent to just 0.7 per cent. Italy and the UK are also on the receiving end of sharp downgrades. Finally, the US economy cooled in the first two months of 2019, with growth characterised as “slight-to-moderate” across most of the country, according to the Federal Reserve’s (Fed) Beige Book, which is based on anecdotal information collected by the 12 regional Fed banks.

The government shutdown in January led to weaker activity in various districts. Prices continued to increase at a modest-to-moderate pace, with several districts noting faster growth for input prices than selling prices, signalling that businesses were finding difficulty passing on their costs.

The Beige Book is traditionally published two weeks before the Fed’s policy meeting, with the next meeting scheduled for March 19 and 20.

This report was compiled by Bank of Valletta for general information purposes only.

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