The word is out that bearing in mind the shaky state of the Eurozone economy, the ECB may be thinking about opening the money taps wider.
Analysts are betting on bank boss Mario Draghi to use his Thursday news conference to announce more quantitative easing in his bid to stimulate growth in Europe’s feeble recovery, raise inflation, and limit damage from any Chinese hard landing, Euronews reported.
Despite around €1 trillion of new money at the rate of 60 billion a month, low energy prices and a weak euro, the Eurozone’s performance remains anaemic.
The ECB stands ready to act promptly and decisively if it decides that its current policy is failing to stimulate the sluggish eurozone economy, its president Mario Draghi told the region’s bankers.
It was the second dovish speech in a week for Draghi, who continues to hint that a ramping-up of the ECB’s trillion-euro asset purchase program could be announced in December.
“At the December governing council meeting, we will thoroughly assess the strength and persistence of the factors that are slowing the return of inflation towards 2%. If we conclude that the balance of risks to our medium-term price stability objective is skewed to the downside, we will act by using all the instruments available within our mandate,” Draghi said at the Frankfurt European Banking Congress on Friday morning.
“We consider the asset purchase program to be a powerful and flexible instrument, as it can be adjusted in terms of size, composition or duration to achieve a more expansionary stance...if we decide that the current trajectory of our policy is not sufficient to achieve our objective, we will do what we must to raise inflation as quickly as possible.”
3 Risks to Inflation
Citigroup Chief Economist Willem Buiter and Moris Kraemer, the chief sovereign ratings officer at Standard &Poor’s, both agreed that the ECB could not solve the eurozone’s sluggish recovery on its own and stipulated that government policymakers should be doing more to help.
Buiter told CNBC that Draghi’s speech on Friday was “as expected” and said that investors should not “overestimate the power of central banks.”
The central banking head also highlighted three risks to the embattled eurozone economy at the Frankfurt speech. He spoke of a “deterioration of the external environment.” He said that outlook for global demand, especially in emerging markets, had notably worsened.
The strength of the underlying eurozone recovery was only “modest” he said, and added that the present upswing, which started in 2013, is the weakest eurozone rebound since 1998.
Lastly, he said the recovery remained very protracted in a historical perspective. He explained that the eurozone had seen the worst recession since the 1930s and would only return to its pre-crisis level of output in the first quarter of 2016, according to current estimates. It took the US economy 14 quarters to reach its pre-crisis peak, he recalled, but added that it would have taken 31 quarters for the eurozone to do likewise.
The minutes of the ECB’s last policy meeting–released Thursday–also reinforced the view that the ECB could act in December. The council members said they would reexamine the degree of policy accommodation at its next meeting, according to the minutes, adding that it stands ready to act if necessary.
Growth in the 19-country single currency union has failed to gain any traction following the global financial crash of 2008 and the sovereign debt crisis two years later.
The potential for a Greek exit has been quashed with more financial aid packages but the eurozone is yet to reach second gear. Unemployment remains above 10%, growth reached a feeble 0.3% in the last quarter and inflation is well below to 2% target, up a meager 0.1% in October.
