ECB Ready to Give Eurozone More Stimulus

The European Central Bank is ready to give the eurozone economy a bigger dose of stimulus if turmoil in China and weaker global growth hurt its modest recovery, President Mario Draghi said Thursday.

Market volatility, concern over a looming U.S. interest-rate increase and a drop in oil prices have spawned uncertainty over the global economy, leading the ECB to cut its inflation and growth forecasts for the eurozone.

Draghi said the ECB can add to its 1.1 trillion euro ($1.2 trillion) program if the 19-country currency bloc needs it.

“We expect the economic recovery to continue, albeit at a somewhat weaker pace than earlier expected, reflecting in particular the slowdown in emerging market economies, which is weighing on global growth and foreign demand for euro area exports,” Draghi said.

He cautioned that it was premature to conclude that the market turmoil of recent weeks means longer-term trouble for the world economy. Draghi said that before acting, the ECB wanted to learn “whether this is just the beginning of long-term lower output, or a strictly transitory phenomenon.”

The ECB is pumping 60 billion euros a month in newly printed money into the eurozone economy by buying government and corporate bonds. The program, dubbed quantitative easing, or QE, is slated to run at least through September 2016.

Draghi said the bank could increase the “size, composition and duration of the program.”

Tom Rogers, senior economic adviser to the EY Eurozone forecast, said that the ECB’s cuts to its forecasts “imply that QE will go on longer than the current end-point.”

Joerg Kraemer, chief economist at Commerzbank, said the ECB would likely increase the size of the stimulus program at its December meeting, and predicted it would do so by raising the amount of monthly bond purchases rather than by extending the program’s duration.

A skeptic of such bond-buying programs, Kraemer argued that more stimulus would not help, saying it would only support financial markets, while taking pressure off of eurozone governments to reform their economies.

The stimulus is intended to help get consumer price inflation back toward the ECB’s target of just below 2 percent. In the year to August, inflation stood at just 0.2 percent. Draghi said the rate could even go negative in coming months due to a further drop in oil prices this summer.