The Daily Update - Darkening skies over the EU

Over the weekend Ignazio Visco, the Bank of Italy’s Governor warned of the downside risks to the central bank’s forecast for economic growth after the nation slipped into a recession in the last quarter of 2018. The recession, Italy’s third in a decade comes as the bank’s latest growth projection of 0.6% GDP growth for 2019 and 1% for 2020 start to look optimistic, in spite of being in-line with national and international forecasters. Visco acknowledged ‘The prospects for the Italian economy are less favourable today than they were a year ago’ adding there are ‘significant risks on the downside’. Not that the Italian anti-establishment government sees it that way, instead blaming its centre-left predecessors for the latest GDP slump. Luigi Di Maio, the Deputy Prime Minister, believes the data ‘certified the failure of the entire political class which Italians sent packing in 2018’.

All this comes on the back of darkening economic skies again over the European continent, with Mario Draghi describing the present situation as ‘overcast’. Wherever the chairman of the ECB looks, it is indeed ‘overcast’. Germany, the backbone of the EU economy, has posted its slowest growth in five years, plus the biggest decline in retail sales in more than a decade in December. Brexit just keeps dragging on, seemingly no closer to an agreement than they were 2 years ago, China slowdown, plus inflation dropping, as if it ever was headed in the right direction in the first place. So, risks to euro area growth are now tilted to the downside. However, Draghi is quoted as saying that if things go very wrong, the ECB can use policy tools again. I have a feeling that particular toolbox may be very sparse indeed were he to need it.

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