13th Aug 2015 12:18
VIENNA (Alliance News) - Policymakers expect Eurozone's economic recovery to broaden further, but to remain moderate and gradual, and risks to the outlook were seen on the downside that included a larger-than-expected adverse impact from the financial developments in China, the minutes of the July rate-setting session of the European Central Bank revealed Thursday.
"Looking ahead, members generally expected a further gradual broadening of the economic recovery in the euro area," the minutes, which the bank calls "the account", of the July 15-16 Governing Council session showed Thursday.
"Overall, the recovery in the euro area was expected to remain moderate and gradual, which was considered disappointing from both a longer-term and an international perspective, as real GDP currently stood only close to its 2008 level in the euro area, while in the US it had registered a significant rebound," the report said.
The downside risks to the economic outlook included the prospect of weaker export performance due to a possible reversal of recent energy price and exchange rate developments, as well as lower than expected global trade growth.
However, policymakers stressed on "the continued need for caution" given the weaker data recently, such as industrial production figures for May that showed a decline from the previous month.
"In particular, financial developments in China could have a larger than expected adverse impact, given this country's prominent role in global trade. This risk could be compounded by negative knock-on effects from interest rate increases in the US on growth in EMEs," the ECB said.
On Tuesday, China devalued its currency the renminbi, also known as the yuan, by 1.9% to cushion its exports as the economy shows no solid signs of revival after the volatility in the stock market. It was the biggest devaluation in more than two decades. The country's central bank on Wednesday engaged in verbal intervention to defend its surprise move on yuan.
Turning to Greece, policymakers assessed the risks arising from developments related to the debt crisis in the country to be "generally contained". It was also felt that recently improved prospects for the negotiations of a third bailout for Greece could be expected to contribute to a firming of confidence across the euro area, the report said.
"Nevertheless, setbacks in those negotiations could still negatively affect confidence and activity, and some caution was expressed regarding potential contagion risks in particularly adverse scenarios, which should not be underestimated," it added.
Copyright RTT News/dpa-AFX