Lower Growth Forecasts for the Eurozone In the Face of Weak Domestic and External Factors

Last week, the European Central Bank (ECB) roiled global equity markets when it released its latest economic forecast, which included sharp cuts to the bank’s 2019 and 2020 forecasts. The central bank is now projecting that eurozone real GDP will grow by 1.1% in 2019 (cut from December’s 1.7% forecast) and 1.6% in 2020 (1.7% in December). The bank cited the impact of both domestic and external factors on the short-term outlook, stating that, “a combination of global uncertainties (such as threats of an escalation of protectionist measures and the possibility of a disorderly Brexit) as well as adverse domestic factors in some euro area countries are likely to continue to weigh on euro area activity.” The forecast update also included the announcement of a new stimulus program for eurozone banks, as well as updated guidance on monetary policy, with rates now expected “to remain at their present levels at least through the end of 2019.”