Ready to do more, ECB rules out swift recovery

A euro logo sculpture stands in front the headquarters of the European Central Bank in Frankfurt October 26, 2014. REUTERS/Ralph Orlowski
A euro logo sculpture stands in front the headquarters of the European Central Bank in Frankfurt October 26, 2014. REUTERS/Ralph Orlowski

FRANKFURT, May 22 — European Central Bank governors do not expect a quick rebound from coronavirus-induced economic damage, minutes from their last meeting showed today, and are considering further stimulus as soon as next month.

A “swift V-shaped recovery” — in which a steep drop is followed immediately by a correspondingly sharp recovery — can “probably already be ruled out”, the account of the April 30 meeting read.

ECB chief Christine Lagarde said last month that eurozone output could shrink by five to 12 per cent this year as lockdown measures to contain the virus paralyse economic activity, fuelling unemployment, upending international supply chains and depressing consumer demand.

The bank is due to unveil its latest quarterly growth and inflation forecasts for the 19-nation currency club at the next monetary policy meeting on June 4.

With the fallout from the pandemic still highly uncertain, ECB governors expect that the June projections will be “revised down significantly”. 

ECB staff have calculated three possible scenarios, but have agreed that the one assuming a mild economic impact was “probably already too optimistic”.

The governing council stressed however that the ECB stood ready to take more action to help steer the eurozone through its worst crisis in decades.

The Frankfurt institution has already committed to spending over a trillion euros on government and corporate bonds this year to keep liquidity flowing and encourage spending and investment.

That includes a 750-billion-euro (US$815-billion) Pandemic Emergency Purchase Programme (PEPP) that is set to run until the end of the year at least.

The ECB is “fully prepared” to ramp up the programme as early as next month if governors “judged that the scale of the stimulus was falling short of what was needed”, according to the readout.

The minutes showed “the ECB’s clear readiness to do more,” said ING Diba analyst Carsten Brzeski. “And for the time being, the PEPP remains the main policy tool.” — AFP

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