Draghi’n the Line
Submitted by Atlas Indicators Investment Advisors on March 7th, 2019
Mario Draghi, the European Central Bank’s (ECB) President, surprised the world yesterday. Growth and inflation targets are not being met in the euro-zone according to the central bank’s latest forecast. Their projections now show growth reaching just 1.1 percent this year, falling from 1.7 percent in their prior prognostication.
In response to these lowered expectations, the central bankers created a package of assistance to help goose growth. They have promised additional loans to banks, increasing current stimulus, and vowing rates will remain at or near record lows for even longer. This announcement rippled through various market places yesterday, even pushing rates on 10-year Italian bonds below their U.S counterpart’s level. It wasn’t that long ago when many worried Italy’s dangerously high debt level would ruin the European economy; now in an effort to find higher yields in a low-rate environment, investors flocked to their bonds, pushing rates lower. Of course, the ECB wasn’t the only group downgrading forecasts this week.
The Organization for Economic Co-operation and Development lowered its outlook for global growth as well. They believe prospects are weaker in nearly all G20 countries than previously projected. They mention European and Chinese slowdowns specifically in this release. And while they downgraded their U.S. estimate marginally for 2019, they upped the 2020 figure for both America and Canada.
Against these two developments, the U.S. economy seems to be in even better relative shape compared to these other economic zones (i.e., EU and China) than previously understood. Our economy is far from perfect, but it stands out when juxtaposed to the current and projected malaise in overseas countries. Atlas will continue monitoring economic and market indicators, keeping you posted as to whether or not economic outcomes develop in line with these recent forecasts.
