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Frankfurt - The European Central Bank (ECB) is expected to leave interest rates on hold Thursday as it considers deploying new instruments to spur economic growth in the eurozone and to bring the region back from the brink of deflation.
This formed part of a multi-pronged package drawn up by the bank to ensure the struggling 18-member eurozone economy remained on a growth path as well as allaying fears of deflation.
But since then, a slew of new indicators have raised fresh concerns among analysts that the currency bloc's recovery last year from a protracted economic downturn could be fading and that the region might slump back into recession in the coming months.
As a result, the market focus will be on ECB chief Mario Draghi's press conference - set to take place later Thursday - for an indication on how close the bank is to launching a new round of monetary stimulus, including an asset-backed securities scheme as part of a quantitative easing programme.
Analysts also expect Draghi to say that the ECB has lowered its economic growth and inflation projections for the eurozone.
Impact on Africa
“If we see an indication towards an increase in rates, at best emerging economies’ equity markets like the JSE, are likely to perform well during a recovery phase as economic conditions improve globally and company revenues increase," Mabyanine Phiri, portfolio associate at ACM Gold told Fin24.
"Commodities, which are a key growth factor from an African standpoint, are likely to carry out well during this phase of the business cycle when production is increasing rapidly and capacity improves."
However, Phiri said demand could slow down due to the high cost of borrowing affecting exports negatively and subsequently the current account balance.
The Bank of England governor Mark Carney said the high expectations of wage recovery may spur the central bank officials to raise interest rates.
"With two out of nine votes for a raise in interest rates, and a general inclination toward curbing stimulus by major policy makers, there is a slight indication of a stimulus-induced deficit-driven recovery outlook for 2015," said Phiri.
"Typically, African economies will benefit from stronger commodity prices and a larger foreign direct investment if a recovery is actually on the horizon."
These gains can, however, be constrained by currency appreciation in the mature economies.
"Rising food prices remain a major concern for African economies. African economies produce commodities that we export to Europe, but we are also importers of oil, and as commodity prices rise and the price of crude oil rises, it feeds itself into domestic energy prices as well as domestic food prices," said Phiri.
"The patterns of gains across Africa depend on the proportion of commodities in the export basket and the extent to which countries import food and oil from Europe."
Restraining global food prices should improve outcomes in most African economies, while sharply lower commodity prices hold some potential for a more serious negative economic shock, according to Phiri.
"At best emerging economies’ equity markets like the JSE, are likely to perform well during a recovery phase as economic conditions improve globally and company revenues increase," said Phiri.
In early trade on Thursday improved business confidence helped the rand strengthen against the US dollar, while comments from the ECB should provide direction later, reported Reuters.
By mid-morning the JSE All-share index was up 0.02% at 51 802 and the Top-40-index was up 0.04% at 46 406.
- Fin24
