ECB officials raise fears over recovery

Posted on November 17, 2016

The European Central Bank’s governing council has delivered a bleak assessment of the eurozone’s economic prospects, suggesting that policymakers will unveil a fresh round of stimulus at their December vote.

Analysts expect the council to make a decision in early December on whether to extend its landmark quantitative easing programme past the current deadline of March 2017.

The minutes of the council’s 17 November meeting, published on Thursday, indicate an extension is likely, revealing the group of 25 officials is becoming increasingly concerned about the region’s recovery.

Fears over mounting protectionism, paltry wage growth and a lack of investment were among the risks flagged in the minutes.

Crucially for an institution whose sole official policy goal is an inflation target of just under 2 per cent, officials believed these risks to growth would weigh on inflation — which at 0.5 per cent remains disappointingly low.

“The prevalence of downside risks to the outlook for economic activity was seen to entail downside risks to the inflation outlook,” the minutes said.

While officials believed they did not yet have enough information to justify unleashing a fresh round of bond purchases, most agreed that they would be in a better position to do so by the time of the next policy vote on December 8.

The council will decide then whether to extend its landmark quantitative easing programme at the current pace of €80bn-worth of bond purchases a month. It could also announce changes to the design of the programme, to enable it to counter a scarcity in asset eligible for the eurozone’s central bankers to buy.

The minutes will only add to expectations that the ECB will continue to buy bonds at the same pace until at least the second half of 2017. Reports earlier this year had suggested that the ECB could begin to slow the pace of its purchases after the spring.

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