ECB set to remove support as clouds gather

12 December, 2018 12:00 AM printer

FRANKFURT AM MAIN: Policymakers at the European Central Bank will remove a key pillar of their support for the eurozone economy as planned Thursday, even while offering a gloomier outlook for the coming years, analysts expect.

But with financial markets in turmoil over risks in Europe and beyond -- from Brexit to an Italian budget row and Donald Trump's trade showdown with China -- the Frankfurt institution will be at pains to strike a reassuring tone, reports AFP.

After more than three years and purchases of 2.6 trillion euros ($3.0 trillion) of government and corporate bonds, the ECB should announce as planned the end of its "quantitative easing" (QE) programme, after months of stepwise winding-down.

Designed to pump cash through the financial system and into the real economy, central bank chiefs say the scheme has stoked growth and set the eurozone on a path towards inflation at their target pace of close to, but below 2.0 percent.

The 19-nation single currency area saw unexpectedly powerful growth in 2017, but expansion has since fallen back, dropping to just 0.2 percent between July and September.

Speaking to European lawmakers last month, ECB President Mario Draghi said the sharp third-quarter slowdown was largely due to one-off factors, such as a bottleneck for the car industry from new EU emissions tests.

And regardless of risks to growth, "the underlying strength of domestic demand and wages continues to support our confidence" in inflation rising to target, he added.

That confidence means come Thursday, "it's the end of QE as we know it and we will be fine," predicted ING Diba bank economist Carsten Brzeski.

Even after the end of QE, "let's not forget that there is still a reinvestment programme in place," he added. The ECB will stay active in debt markets by reinvesting the proceeds from its massive stock of bonds as they mature -- holding down borrowing costs for governments and firms for longer.

And it is expected to keep interest rates at historic lows "at least through the summer" of next year as a further spur to activity.

Draghi should play up such continued support for the eurozone as he presents what are widely expected to be lower forecasts for growth in 2018 to 2020, as well as offering the first glimpse of the ECB's expectations for 2021.