With Eurozone Economy Wavering, E.C.B. Leaves Policy Unchanged
By JACK EWING
Mario Draghi, the president of the European Central Bank, is expected to provide some clarity on Thursday on the direction of the eurozone economy. Credit Yves Herman/Reuters
FRANKFURT — The eurozone economy has been a puzzle lately. Some indicators are pointing up, some down and some sideways. It’s hard to know whether growth is losing momentum or just pausing for breath.
Even the eurozone’s most influential economist, Mario Draghi, the president of the European Central Bank, expressed uncertainty on Thursday about what had been going on — whether recent economic data pointed to “the beginning of a decline or simply a normalization following a period of very strong growth.”
The central bank’s Governing Council didn’t even discuss monetary policy during a meeting earlier in the day, Mr. Draghi said, preferring not to tamper with the status quo until there was more information. “‘A steady hand’ were words used” in the council’s discussion, Mr. Draghi said at a news conference.
If he had sounded worried that growth was sputtering, that could have meant that the bank would take longer than expected to wean the eurozone off monetary stimulus. But his expression of concern on Thursday was not strong enough to prompt analysts to recalculate their estimates of when the Governing Council, the bank’s policy-setting committee, will end its de facto money-printing program.
However, the euro fell against the dollar after Mr. Draghi’s remarks, a sign that they may have made traders more pessimistic about the outlook for the eurozone.
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The central bank has promised to continue the stimulus at least until September, and most analysts expect it to begin winding down the program soon after that. Many analysts now expect the central bank to provide a clearer picture of its intentions at its next meeting, in June.
Among professional economists, there is no consensus about what is going on in the 19-nation eurozone. Every day seems to bring a new indicator that conflicts with one the day before.
On Monday, for example, a survey of eurozone purchasing managers by the research firm IHS Markit indicated that expectations for growth were stabilizing after several months of decline. That was good news.
Then, on Tuesday, bad news. The German Ifo Institute’s survey — a well-tested indicator of how managers are feeling in the eurozone’s largest economy — took a dive. Similar surveys in France and Italy also dipped, probably because business managers are worried that the region will be drawn into a trade war with the United States.
But wait: Then came a survey by the European Central Bank showing that commercial banks in the eurozone are becoming more willing to lend. That information bolstered economists who believe that recent signs of slowing growth reflect temporary factors, like an especially pernicious flu season that kept many workers home and hurt business.
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Amid so much uncertainty, Mr. Draghi’s view of growth is critical. He has a large staff of experts and access to data not available to private sector economists, not to mention a doctorate in economics from the Massachusetts Institute of Technology.
And unlike the view of your average economist, Mr. Draghi’s is partly self-fulfilling. If he displays confidence, banks will be more eager to lend, businesses may be more willing to invest in expansion and to hire more people and, lo, it will be so.
For financial markets, the key question in the weeks to come is whether recent economic data will alter the European Central Bank’s schedule for ending the measures it used to keep the eurozone together during an existential debt crisis. Chiefly, the bank bought hundreds of billions of euros in government and corporate bonds as a way of pumping money into the economy.
In recent months, the Governing Council has been making subtle changes in the statements it issues after monetary policy meetings as a way of preparing investors for an end to the bond buying, known as quantitative easing. On Thursday, it left monetary policy unchanged, and made no major changes to its statement.
September is expected to be the last month of the purchases, though the bank will continue to reinvest money it gets back when bonds mature. The aim is to gently bring monetary policy back to normal. Sometime late next year, or maybe not even until 2020, the European Central Bank will then probably begin raising its benchmark interest rates, currently at a historic low of zero, for the first time since 2011.
Any indication by the Governing Council that it is revising its timetable would be big news. But the council takes the long view and has shown in recent months that it won’t be thrown off course by a few unsettling economic indicators.
One thing is virtually certain: The bank is not likely to signal any acceleration of its schedule for ending the stimulus.
“It would take a bold central bank to tighten monetary conditions when the economy is contracting, or even just slowing,” Carl Weinberg, chief international economist for High Frequency Economics in New York, said in a note to clients.