ECB policymaker sees risks to euro growth, says Brexit a major concern

Anti-Brexit protests have broken out across the UK this week. (Reuters)
Updated 31 August 2019

ECB policymaker sees risks to euro growth, says Brexit a major concern

  • De Cos: UK’s withdrawal from the EU “remains a focus of first-order uncertainty for the global economy, especially for the EU

MADRID: The balance of euro zone growth appears negative, European Central Bank (ECB) policymaker Pablo Hernandez de Cos said on Saturday, citing a disorderly Brexit as a key risk and acknowledging the ECB’s shortcomings in meeting inflation goals.

De Cos said in a speech in La Granda in northern Spain that the UK’s withdrawal from the EU “remains a focus of first-order uncertainty for the global economy, especially for the EU.

“The most recent events, including the decision to suspend the British Parliament by the new prime minister until mid-October, have increased the likelihood of a hard Brexit,” De Cos said.

British Prime Minister Boris Johnson said on Wednesday he would suspend parliament from mid-September to mid-October ahead of an Oct. 31 Brexit deadline, raising the stakes in the country’s deepest political crisis in decades.

De Cos also mentioned the political situation in Italy, doubts about the intensity of China’s economic slowdown, and vulnerabilities in emerging economies such as Turkey and Argentina as risks.

He added that protectionist measures were among the greatest threats to global activity, in a reference to the trade war between the US and China.

The euro zone barely grew in the second quarter and Germany, the bloc’s power house, may already be in recession as the trade spat, China’s slowdown and Brexit uncertainty reduce export demand and sap confidence in the manufacturing sector.

De Cos added the slide in recent months in the global services sector purchasing managers’ index, which had previously been more robust, indicated a growing risk of a slowdown in global activity.

ECB policymakers are concerned about weak growth, and the minutes of their July 25 meeting showed options on the table include a combination of rate cuts, asset purchases, changes in the guidance on interest rates and possibly support for banks.

De Cos said there was a possibility that low or negative interest rates may have an adverse effect on financial stability and banks.

“It is necessary to closely monitor this issue to determine whether measures that mitigate the adverse effects of low rates on the intermediation capacity of the banking system are necessary.”

He also noted that inflation has persistently undershot the ECB’s target of below but close to 2 percent. In August, euro zone inflation remained low at 1 percent.

“You cannot consider that observed or projected levels of inflation ... are compatible with the ECB mandate,” he said.


Oil recoups losses as OPEC, US Fed see robust economy

Updated 14 November 2019

Oil recoups losses as OPEC, US Fed see robust economy

  • US-China trade deal will help remove ‘dark cloud’ over oil, says Barkindo

LONDON: Oil prices reversed early losses on Wednesday after the Organization of the Petroleum Exporting Countries (OPEC) said it saw no signs of global recession and rival US shale oil production could grow by much less than expected in 2020.

Also supporting prices were comments by US Federal Reserve Chair Jerome Powell, who said the US economy would see a “sustained expansion” with the full impact of recent interest rate cuts still to be felt.

Brent crude futures stood roughly flat at around $62 per barrel by 1450 GMT, having fallen by over 1 percent earlier in the day. US West Texas Intermediate crude was at $56 per barrel, up 20 cents or 0.4 percent.

“The baseline outlook remains favorable,” Powell said.

OPEC Secretary-General Mohammad Barkindo said global economic fundamentals remained strong and that he was still confident that the US and China would reach a trade deal.

“It will almost remove that dark cloud that had engulfed the global economy,” Barkindo said, adding it was too early to discuss the output policy of OPEC’s December meeting.

HIGHLIGHT

  • US oil production likely to grow by just 0.3-0.4 million barrels per day next year — or less than half of previous expectations.
  • The prospects for ‘US crude exports had turned bleak after shipping rates jumped last month.’

He also said some US companies were now saying US oil production would grow by just 0.3-0.4 million barrels per day next year — or less than half of previous expectations — reducing the risk of an oil glut next year.

US President Donald Trump said on Tuesday Washington and Beijing were close to finalizing a trade deal, but he fell short of providing a date or venue for the signing ceremony.

“The expectations of an inventory build in the US and uncertainty over the OPEC+ strategy on output cuts and US/China trade deal are weighing on oil prices,” said analysts at ING, including the head of commodity strategy Warren Patterson.

In the US, crude oil inventories were forecast to have risen for a third straight week last week, while refined products inventories likely declined, a preliminary Reuters poll showed on Tuesday.

ANZ analysts said the prospects for US crude exports had turned bleak after shipping rates jumped last month.