Spotlight on ECB over fears for euro zone growth

FRANKFURT: The European Central Bank (ECB) is expected to detail plans on Thursday for another round of loans to banks, while growth and inflation worries plaguing the euro zone could prompt further interventions.
After a weak patch in late 2018, economic expansion in the euro zone bloc bounced back between January and March, gaining 0.4 per cent from the last quarter of 2018.
That should normally be good news, with growth pushing inflation towards the central bank’s price stability target.
However, economists say business confidence surveys, shaken by US-led trade wars and subdued market expectations for price growth, put pressure on the ECB to do more at its meeting in Vilnius, Lithuania.
On top of threats from overseas, worries closer to home include a looming budget confrontation between Brussels and Rome, elections in Greece and a possible no-deal Brexit following the departure of British Prime Minister Theresa May.
“With substantial risks to the economic outlook and markets… sending inflation expectations scarily low, bold monetary action is needed,” said Erik Nielsen, chief economist at Italian lender UniCredit.
So-called “five-year/five-year” swaps — which reflect how financial players judge the pace of price growth between five and 10 years from now — currently almost match their mid-2016 level of 1.25 per cent, their lowest ebb under ECB president Mario Draghi’s eight-year tenure.
That is far from the central bank’s inflation goal of just below 2.0 per cent.
“In the past, the announcements of new ECB stimulus often coincide with sharp drops in market-based inflation expectations,” ING bank economist Carsten Brzeski said.
However, after years of low rates and other unprecedented steps to boost lending and growth, “there is not a lot it can do to really kick-start growth if needed,” he added.
The ECB said that it would repeat from September a scheme offering banks low-interest loans in exchange for them lending on the cash to the wider economy. — AFP