Monday, 22 July 2019

ECB set to remove support as clouds gather

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FRANKFURT: Policymakers at the European Central Bank will remove a key pillar of their support for the eurozone economy as planned, 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.

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.

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