Eurozone economic recovery to broaden and strenghten: ECB
NICOSIA, Cyprus — The European Central Bank will unleash its 1.1 trillion euro ($1.2 trillion) stimulus program on Monday — and says the prospect is already boosting the eurozone economy.
Mario Draghi, the bank’s president, said consumers and businesses in the 19 euro countries are benefiting not only from cheaper energy prices but also from optimism over the coming stimulus.
He cited “a significant number of positive effects” from the January announcement of the massive stimulus plan, on top of previous efforts to loosen credit to businesses. Borrowing conditions are already considerably easier, he noted.
“Looking ahead, we expect the economic recovery to broaden and strengthen,” Draghi told reporters after the bank kept its key interest rate on hold at its monthly meeting Thursday. The comments helped push up European stocks and sent the euro to a 12-year low.
The ECB raised its eurozone growth forecast for this year to 1.5 percent from 1.0 percent amid signs credit is flowing more easily. Draghi cautioned that some member states’ failure to make pro-growth reforms would dampen the recovery.
He said the ECB would on Monday start buying 60 billion euros ($67 billion) a month in government and corporate bonds. The purchases with newly printed money aim to drive down market interest rates, stimulating lending and growth and raising the rate of inflation, which is dangerously low at minus 0.3 percent.
The currency union still faces serious risks as it tries to recover from a crisis over government debt in countries such as Greece, Portugal, Ireland, Spain and Italy. Growth is returning, overcoming the drag from government spending restraint and higher taxes. But progress is lagging on reforms by member countries such as France to cut regulations on hiring and firing and reduce red tape that discourages business growth.
And Greece is still struggling to avoid a default on its debts that could force it to leave the euro. A Greek departure could undermine belief in the solidity of the currency union and hurt governments’ ability to borrow affordably.
“It is clear that the ongoing risk of a Greek exit from the eurozone, and the financial fallout in other vulnerable economies, continues to pose a risk to confidence in the eurozone and firms’ willingness to invest and create jobs,” said Tom Rogers, senior economic adviser to the EY eurozone forecast.
