Draghi confirms plan to end QE despite weak economic data
ECB president says slowdown a return to normal growth amid threat of rising prices
Mario Draghi has insisted that the European Central Bank still plans to halt its €2.6tn stimulus programme at the end of this year, arguing that inflation is set to increase despite recent disappointing economic data.
Appearing before the European Parliament, the ECB president said the final decision to end the asset purchase programme would be taken next month “subject to” data confirming the bank’s prediction that inflation was going to “gradually rise”.
Mr Draghi’s comments came after signs of weakening business confidence, notably a slide in the eurozone purchasing managers’ index to a four-year low. The region also grew by only 0.2 per cent in the third quarter, compared with 0.4 per cent in the first half of the year.
But the ECB president argues that the slowdown was in large part a return to normal levels of growth after the eurozone outperformed in 2017.
Mr Draghi pointed to the lowest level of unemployment since 2008 and the “rising profitability” of companies as evidence of what he characterised as the solid underpinnings of the euro area recovery.
He said that while growth numbers had been “somewhat weaker than expected”, the bank remained confident that the stimulus programme — a vital component of the recovery since its introduction in 2015 — could be safely withdrawn.
“Generally, there is good reason to be confident that underlying inflation will gradually rise in the period ahead”, Mr Draghi added, noting that “wages are rising as labour markets continue to improve and labour supply shortages become increasingly binding in some countries”.
The ECB is at present buying €15bn of mostly government bonds every month under the quantitative easing programme, which stimulates the economy by putting money into the financial system and keeping interest rates low.
Mr Draghi told MEPs on Monday that, even once the ECB stops buying bonds, it will continue to provide “a significant degree of monetary policy stimulus.”
The bank will “reinvest” the money from bonds that come due “for an extended period of time”, he said, adding that the ECB’s policy of providing “forward guidance” on its interest-rate decisions would also help.
Mr Draghi also urged governments to press ahead with plans to strengthen the euro area, including plans for a “fiscal instrument” — for example a rainy-day fund— to help countries in the bloc cope with shocks, and moves to complete its “banking union” system for dealing with financial crises.
EU leaders are set to take a first set of decisions on reforms to the currency bloc at a summit next month.
The idea of a fiscal instrument is strongly advocated by France’s president, Emmanuel Macron. Mr Draghi said it would “contribute to macroeconomic stability both at the euro area level and, crucially, in each of its member states”, reducing the need for costly sovereign bailouts.