BUSINESS European Central Bank holds out hope for growth rebound

BUSINESS

European Central Bank holds out hope for growth rebound

AP

22:14, May 23, 2019

Top officials at the European Central Bank at their last meeting held on to their hopes for a return to stronger economic growth in the second half of the year even as they underlined their readiness to deploy more stimulus if needed.

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European Central Bank President Mario Draghi arrives for a meeting of Eurogroup Finance Ministers at the European Council headquarters in Brussels, Thursday, May 16, 2019. (File photo: AP)

The written account of the April 10 meeting, released Thursday, showed that the bank's 25-member governing council felt that economic data continued to point to a second-half upswing.

They acknowledged, however, that there was "somewhat less confidence in this baseline scenario" and that the "range of other possible outcomes had widened."

The 19-country eurozone economy entered a soft patch at the end of last year but showed somewhat stronger growth of 0.4 percent in the first quarter from the quarter before. The US-China trade dispute and slowing global trade have held back economic output.

ECB President Mario Draghi said after the April meeting that the bank remained ready to deploy all its tools to support the economy if inflation threatened to head downward. The ECB aims to have annual inflation of less than but close to 2 percent — it was 1.7 percent in April.

At the end of last year, the central bank ended a 2.6 trillion euro ($2.9 trillion) bond-buying stimulus program carried out over almost 4 years, predicting that inflation was headed consistently toward its goal. A string of weak reports about growth and trade have since led the bank to shift its stance toward maintaining stimulus, rather than withdrawing it. In March, the bank put off the earliest date it would consider an interest rate increase from this fall to the end of the year. Some analysts think the ECB could extend that even farther into the future.

The ECB has joined the US Federal Reserve in pausing a withdrawal of stimulus policies deployed in the wake of the Great Recession and global financial crisis.

A longer period of low interest rates has wide-ranging impact on companies and consumer pocketbooks. Low rates make financing cheaper for companies to operate and invest, and reduce borrowing costs for people buying houses through mortgages. But they also reduce returns for savers, strain pension systems and can inflate the prices of assets such as stocks and bonds, with uncertain outcomes for markets when rates eventually go up.

The ECB's benchmark rate for lending to banks is at a record low of zero. It has also imposed a negative 0.4 percent rate on deposits it takes from private-sector banks. The negative rate is in effect a penalty aimed at pushing banks to lend the money.

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