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European Central Bank President rejects recession fears

President of the European Central Bank (ECB), Mario Draghi, has said coping with the refugee crisis will boost growth and quash fears of a global market recession.

He said it’s important that European countries work together, ensuring migration is properly managed to raise consumer spending and money generation within the European economy [1].

Draghi stated that 2016 had begun with “market gyrations” and a “heightened sensitivity to risk”, but noted that it was too early to ascertain if the fundamentals had changed for the worse [1].

At the World Economic Forum in Switzerland, he stated in regards to reigniting consumer prices: “We’ve plenty of instruments. We have the determination, and the willingness and the capacity of the Governing Council, to act and deploy these instruments” [2].

The comments reflect the ECB’s agreement to review its strategy of a €1.5tn bond-purchase plan and negative interest rates [2]. There are plans to raise the Eurozone’s inflation level closer to the target of 2% [1].

Carsten Brzeski, Chief Economist at ING-DiBa AG in Frankfurt, has likened the discussion to ‘Groundhog Day’. “The only question is, will he fulfil the dreams of markets this time around, or will he disappoint again?” he questioned [2].

The annual World Economic Forum topics surrounded the arrival of more than 1 million refugees last year. Draghi focused on the positives and said that Europe needed to show support and willingness to cooperate, “because the size of the challenge could actually undermine the confidence, and make fear prevail over any other consideration. And the challenge is lost” [1].

Anatoli Annenkov, Senior Economist at Societe Generale SA, is not so sure. “He’s [Draghi] reacting to the changed circumstances, but we still need to wait for the new forecasts and the council to come together. I’m not sure that means more or less action, and the markets will also need to learn from the experience in December” [2].

Economists at JP Morgan and the Royal Bank of Scotland Group are expecting forecasts to be released in March.

 

[1] The Guardian. ‘Mario Draghi rejects global recession fears and says refugee crisis is an opportunity’. theguardian.com

[2] Bloomberg. ‘Draghi’s market dialog moves to Davos after ECB’s Groundhog Day’. bloomberg.com