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Business News

Stock markets slide after ECB head slashes eurozone growth hope

The European Central Bank sent tremors through stock markets yesterday as president Mario Draghi cut growth forecasts for the single currency bloc this year.

The bank – which kept its key interest rate on hold at 0.5 per cent – now forecasts that the eurozone's economy will shrink 0.6 per cent this year, worse than its previous estimates of a 0.5 per cent slide.

Mr Draghi said the economy "should stabilise and recover in the course of the year", but the eurozone has been mired in recession since the end of 2011 and the latest signs of bad news sent City dealing rooms out of equities.

London's FTSE 100 Index, which was closing in on all-time highs of 6,930 just two weeks ago, sank by 1.3 per cent to 6,336, the lowest since mid-April. France's CAC 40 and Germany's Dax sank 0.99 per cent and 1.2 per cent respectively.

Despite six straight quarters of shrinking growth, Mr Draghi said there "wasn't any directional change that would justify taking action at this time".

He offered no further hints on efforts to boost small business lending as well as negative deposit rates for eurozone banks – in effect charging banks to leave cash with the ECB. The Organisation for Economic Co-operation and Development think-tank called on the central bank to consider quantitative easing last week but the ECB remains opposed.

The outgoing Bank of England Governor, Sir Mervyn King, meanwhile brought down the curtain on 16 years of policymaking but failed to persuade rate-setting colleagues to pump more cash into the economy.

The Bank's Monetary Policy Committee voted not to expand quantitative easing beyond the current £375bn, holding interest ratest at their current record low of 0.5 per cent, where they have been since 2009.

Sir Mervyn's term ends on 30 June when he hands over to Mark Carney.