Europe’s economy is finally showing signs of increasing strength, after years of sluggishness and false starts.
And that means the European Central Bank likely won’t have to step up its ongoing €1.74 trillion ($1.94 trillion) stimulus program when it meets this week.
Fear not—the chief monetary authority for the countries that use the euro will go on pumping newly printed money into the European economy in an effort to raise inflation. But that’s only due to measures that were decided at previous meetings, and which are either still running or just now being implemented, AAP reported.
So, analysts don’t expect any new stimulus jolts to be announced at Thursday’s meeting of the bank’s 25-member governing council in Vienna. There’s little sign that President Mario Draghi and company are ready to drop more stimulus news. Some economists are saying don’t expect anything more for the rest of 2016, if at all.
The ECB is holding steady just as the US Federal Reserve seems to be moving close to a rate increase at its June meeting. It raised its key rate in December from near zero to a range between 0.25% and 0.5%, but then held off any more increases amid unsettling swings in stock markets. Global jitters seem to have eased since then. The US recovery is more advanced, so Fed chief Janet Yellen can contemplate withdrawing some stimulus.
ECB Kick Back
Inflation is still way too low, at minus 0.2%, and unemployment is painfully high at 10.2%. But there are two big factors that should let the ECB kick back for a few months at least.
First, the economy in the 19 countries that share the euro currency is finally showing signs of a somewhat more robust and lasting recovery after a miserable six years in which it was battered by global and local crises.
The eurozone grew 0.5% in the first quarter from the quarter before. It finally regained the level of output it had in the first quarter of 2008, before the global financial crisis associated with the collapse of US investment bank Lehman Brothers, and before a crisis over high debt in some countries that almost broke up the currency union.
Figures published on Monday showed that business and consumer optimism rose to a four-month high in May, while inflation expectations picked up across a range of businesses. Auto sales have risen for 32 straight months.
Second, oil prices have crept up, edging above $50 per barrel last week for the first time since July 2015. That should give the ECB a tiny bit of help by raising inflation.
The last ECB projections in March foresaw only 0.1% inflation in 2016 and 1.3% in 2017. That’s well below the bank’s goal of just under 2%, considered compatible with growth and jobs.
