http://www.bloomberg.com/news/
European Central Bank President Mario Draghi has called eurozone the 'island of stability.' He is optimistic about
ECB's performance and that it will bring the inflation rate close to the
target of 2% by 2016.The ECB's current interest rate
is at all time low of 0.25%, thus affecting real growth. The recovery is expected to be at a slow pace.
The current inflation rate is at a very low level which if not improved will lead to deflation.The 9.5trillion euro economy is still emerging from its longest recession since the introduction of a single currency.
The ECB has opted out of the quantity-easing stimulus(practiced in
the USA) which would add 175billion euros in the economy. The reason for
not using this model is that the benefits will be relatively limited.They fear that adding more euros in the market would slack the economy.
The GDP has risen by 0.3% in this quarter but has contracted by 0.4% then 2013.The
industrial output in Germany(euro area's largest economy) has risen. Services and manufacturing has expanded too the most since June 2011.
The euro has climbed to its
highest level due to low inflation rate thus eroding the competitiveness of the region's exporters.The exchange rate might influence their price stability thus ECB doesn't want the euro to grow stronger. Thus the interest rates will be kept at the current level or will be lowered.The eurozone is suffering with high unemployment too. Thus, to achieve long term low unemployment rate, some monetary policies need to be passed.
Thus it is uncertain to predict when eurozone will turn into 'island of prosperity.'
It is good to see that there is some economic recovery in Europe, it however still has issues that need to be dealt with. Unemployment is very high in Europe which is a big problem. Unemployment in Europe needs to be lowered in order for the European economy to advance. Deflation also must be prevented.
ReplyDeleteI think this is great news to all European countries. As the economy continues to recover, we will see a decline in riots and a more confident citizens. Furthermore, people should start to come out of their comfort zone and start spending money which will strengthen the Euro purchasing power. I am optimistic to see how this prediction turn in 2016.
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