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ECB To Cut Euro Area Growth Outlook In Latest Global Slowdown Warning

One week ago, Bank of America’s CIO Michael Hartnett predicted that Europe will be the “missing link” for the emerging market crisis to spread to the rest of the developed world and “morph into a global deleveraging event.”

But where would the crack appear: after all, until recently European economic data had been surprisingly strong… if not so much in the past few days, because after emerging into the green, the Citi Eurozone economic surprise index appears to have rolled over, and returned back into negative territory.

Then, as if to confirm that Europe was finally starting to groan under the weight of EM turmoil, overnight Bloomberg reported that the ECB was set to revise its forecasts lower for euro-area economic growth during its press conference on Thursday “as global trade tensions damp external demand, according to officials familiar with the latest projections.”

According to Bloomberg’s sources, the main nations dragging on demand were the U.K. and Turkey, though the U.S. outlook is still positive.

In June, the ECB predicted economic growth would slow from 2.1 percent this year to 1.7 percent in 2020, with inflation averaging 1.7 percent in all three years covered in the forecast.

The growing pessimistic outlook comes at an “awkward time” for the Governing Council, just as it prepares to wind back stimulus, though the adjustments probably aren’t big enough to derail those plans yet, unless of course the EM turmoil continues and results in even more German foreign factory order weakness.

The silver lining: the path of inflation, the primary consideration for monetary policy, remains unchanged… for now.

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