Central Banks

Euro slips as ECB's Draghi lowers growth forecast for Europe

Key Points
  • Euro slips as Draghi announces a trim to growth forecasts.
  • The ECB's governing council confirmed they will stop expanding quantitative easing (QE) from the end of December — when bond purchases will fall from 15 billion euros a month to zero.
  • The ECB also said it would continue to reinvest cash from maturing bonds for an extended period of time.
Mario Draghi, president of the European Central Bank, in Frankfurt, Germany, on Sept. 13, 2018.
Jasper Juinen | Bloomberg | Getty Images

The euro currency has slipped in value after the European Central Bank (ECB) trimmed its growth forecasts for this year and next.

The ECB's three-year, 2.6 trillion-euro ($3tn) bond buying program is ending this month, and the central bank has claimed it is still on track to raise rates after the summer of next year.

Delivering his prepared remarks to reporters in Frankfurt, ECB President Mario Draghi said 2018 growth in the euro area was expected to be 1.9 percent rather than the 2.0 percent forecast in September.

"The risks surrounding the euro area growth outlook can still be assessed as broadly balanced. However, the balance of risk is moving to the downside owing to the persistence of uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility," Draghi said.

The 2019 GDP (gross domestic product) figure was also trimmed back to 1.7 percent from an earlier forecast of 1.8 percent.

The euro/dollar currency pair was at $1.1375 as Draghi begin speaking and fell to $1.1340 following the data release. On the day, the currency was lower by around 0.25 percent versus the dollar.

For inflation forecasts, Draghi announced that a slight upward revision in his staff projection for 2018 to 1.8 percent, has been offset by a corresponding fall next year.

ECB’s Draghi speaks after central bank announces formal end of QE
ECB’s Draghi speaks after central bank announces formal end of QE

Draghi argued that while headline inflation growth was likely to decrease in coming months, the picture for underlying inflation looked healthier.

"Measures of underlying inflation remain generally muted, but domestic cost pressures are continuing to strengthen and broaden amid high levels of capacity utilization and tightening labor markets, which is pushing up wage growth."

An earlier statement from the ECB had outlined how the 2.6 trillion-euro ($3tn) bond buying program would end this month but attached the rider that reinvestment of existing maturing bonds would continue for an "extended period beyond the first rate hike."

The first rate hike is not expected until the second half of next year.

ECB formally ends massive bond-buying program
ECB formally ends massive bond-buying program

On any suggestion that a global slowdown of growth could trigger another bout of QE, Draghi said the mattter was not up for discussion.

"We didn't have to discuss restarting net asset purchases, because our base line is still valid."