By Laurie Laird
LONDON (MaceNews) – The European Central Bank Thursday confirmed plans to wind down its quantitative easing programme by year end, despite signs of a slowdown in euro zone industrial activity toward the end of the summer.
The 0.8% slump in industrial production recorded in July represented a “sign of convergence of the economy to its safe and steady path,” said ECB President Mario Draghi, in answer to a question posed by Mace News. While Draghi conceded that rising protectionism and jitters in emerging markets could weigh on the euro zone economy, he stressed that the “domestic part remains resilient,” courtesy of falling unemployment and rising wage growth.
However, the ECB’s governing council reduced its 2018 growth forecast by 0.1 percentage point to 2.0%, and maintained its inflation forecast at an annual rate of 1.7 percent for the next three years.
ECB bond purchases will fall to €15 billion at the end of September, before the central bank ceases the programme completely by year end, although Draghi stressed the bank’s intention to maintain an “accommodative” monetary policy by reinvesting proceeds from maturing securities. However, the ECB president repeated his caveat that the monetary policy could be adjusted should “incoming data” fail to support the Bank’s goal of raising inflation to its target of just below an annual rate of 2% over the medium term.
The Bank’s governing council also maintained its main deposit facility rate at -0.4%, and Mr Draghi repeated the governing council’s intention to leave rates at current levels until “at least through the summer of 2019.”
Despite the governing council’s optimism over euro zone economic conditions, the ECB’s forecasts are “broadly balanced,” given the downside risks emanating from the global economy, according to Draghi, not least the growing threat of protectionism. The governing council “has to assess the extent of an escalation [in tariffs] and … what is going to be the effect on general confidence of a trade war,” he added.
The euro zone rate setters also briefly discussed the risk of political uncertainty in the United States ahead of the mid-term elections in November, particularly in relation to fiscal policy in the wake of the Trump tax cuts passed at the end of last year. “The [U.S.] fiscal expansion is pro-cyclical, and there is a danger it could wane in 2020,” Draghi said.