Mario Draghi revealed the biggest cut in the European Central Bank’s economic outlook since the advent of its quantitative-easing programme as policymakers delivered a new round of stimulus to shore up growth.
The ECB President said the Eurozone economy will now expand only 1.1 per cent this year, a drop of 0.6 percentage point from the forecast given out just three months ago. A package of assistance from new loans for banks to a longer pledge on record-low rates is intended to expand the institution’s existing stimulus.
“The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment,” Draghi said. “The risks surrounding the euro area growth outlook are still tilted to the downside.” (The euro fell for a fifth day, dropping 0.5 per cent to $1.1248.)
The ECB is reverting to more monetary support just three months after policymakers decided to end their bond-buying programme and hoped to start weaning the Euro-area economy off its crisis-era stimulus. Their luck ran out after the export-dependent European economy buckled under the weight of trade tensions, a slowdown in China and the uncertainties around Brexit.
Draghi said officials expressed confidence that the economy would follow the path outlined in the updated forecasts and consider the probability of a recession in the 19-nation bloc as “being very low”. The Italian cited growing wages, an improving labour market and consumption that remains “by and large in good shape”.
While Draghi said that the package of measures agreed unanimously on Thursday would make the ECB’s policy stance more accommodative and increase the region’s economic resilience, he stressed that options for the central bank are limited. Policymakers can’t solve problems related to protectionism and Brexit, he said. (Thursday’s meeting was their last before the UK is set to leave the European Union on March 29.)
While many anticipated the ECB would act, an announcement wasn’t expected as early as Thursday. That signals the level of concern among Governing Council members, something that’s been echoed across other institutions and central banks in recent days.