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The Eurozone Faces This Classic Precursor to Deflation

Originally published by Telegraph on September 9, 2016. Read the original article.

What did a trillion in euros worth of stimulus get for the Eurozone?

Answer: Quarterly growth of only 0.3%.

A big concern is that another worldwide economic crisis will strike before the Eurozone gets back on its feet.

There's reason for the currency bloc's financial authorities to fear this scenario. The Eurozone now faces a classic precursor to deflation.

Read this excerpt from a Sept. 9 Telegraph article:

The ECB has pulled out all the stops to reflate the economy yet core inflation has been stuck at or below 1pc for three years. Officials are even more worried about the underlying trends. Data collected by ... Jefferies shows that the percentage of goods and services in the inflation basket currently rising at less than 1pc has crept up to 58pc.

This is a classic precursor to deflation and suggests that the eurozone is acutely vulnerable to any external shock. The figure has spiked to 67pc in Italy, and is now significantly higher that it was when the ECB launched QE last year.

The eurozone should have reached economic "escape velocity" by now after a potent brew of stimulus starting last year: cheap energy, a cheaper euro, €80bn a month of QE, and the end of fiscal austerity. ...

Work by the International Monetary Fund shows that "lowflation" -- even short of deflation -- causes to a host of debilitating pathologies. It holds down nominal GDP and makes it even harder to work off high-debt ratios. ...

The ECB network is running out of assets to buy since it can purchase only in proportion to the size of each national economy, a precaution against backdoor bail-outs of insolvent states.

You can review the entire article by clicking on the link below:

http://www.telegraph.co.uk/business/2016/09/08/ecbs-mario-draghi-has-run-out-of-magic-as-deflation-closes-in/