During European Central Bank President Mario Draghi’s news conference in Frankfurt on Thursday, he warned the 17 euro-based economies of the European Union that the currency still remained weak despite “improvements in investors’ confidence in the euro area.”
However, Draghi expressed satisfaction at the region’s progress. He highlighted several factors indicating that the pressure on financial markets was lifting, including the return of United States money market funds to the region, and stated that the financial market confidence of the region had “visibly improved on the back of our decisions.” He further applauded members of the currency union for their success at reducing government spending.
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Yet economic activity in the area is expected to remain weak. At its regular monthly monetary policy meeting, the bank’s governing council left its key interest rate at 0.75 percent, a record low. Furthermore, recent economic data “does not signal improvements” before the end of the year, Draghi said. Due to high energy prices and indirect taxes in some regions, he predicted that inflation rates are likely to remain above 2 percent for the rest of the year.
There is a serious risk for the euro zone; as the Washington Post reported, the average government debt in the zone is 90 percent of annual economic output, above the 60 percent limit dictated by fiscal regulations.
The Bank of England also kept its benchmark rate at a record low of 0.5 percent. After the British Economy exited from a double-dip recession in the third quarter, with the economic growth of 1, the bank announced it had paused its stimulus program on Thursday. Even though this was the strongest quarterly growth reported since the global financial crisis began in 2008, the growth has been questioned by economists.
“The big picture is that it’s going nowhere, really,” said Capital Economics economist Vicky Redwood to The New York Times. “Output is essentially stagnating. It’s a pretty dismal picture.”
On Wednesday, the European Commission lowered its expectations for Britain’s gross domestic product for 2013. In May, the commission had forecast growth of 1.7 percent; based on risks from the euro zone, the estimate is now 0.9 percent. But compared to that region, Britain’s growth is far better. For the second quarter, Germany reported growth of 0.3 percent.