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ECB easing its pandemic support
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The European Central Bank says it is dialing back some of its massive emergency pandemic support for the economy. The move comes amid signs of increasing business activity and consumer readiness to spend as the 19 countries that use the euro rebound from the coronavirus recession.
The bank said yesterday it could conduct its bond purchase stimulus at 鈥渁 moderately lower pace鈥 than in recent months. Since March the statement has said that the bank would purchase bonds at a 鈥渟ignificantly higher pace鈥 than in the first three months of the year.
The 1.85 trillion (US$2.2 trillion) bond purchase program has no set amount for purchases each month. Analysts have suggested the bank could ease purchases back to 70 billion euros or 60 billion euros, from roughly 80 billion per month since the 鈥渟ignificantly higher鈥 announcement.
Analysts say bank head Christine Lagarde is likely to underline that yesterday鈥檚 move does not represent a decision to end the program, which is slated to run at least through the end of March, 2022.
The eurozone economy emerged from recession in the second quarter with growth of 2.2 percent and a number of economic indicators show activity is picking up strongly. That leaves the eurozone on track to recover its pre-pandemic level around the end of this year or in the first months of next year. Europe鈥檚 recovery initially lagged those in the US and China due in part to initial short supply of vaccines in early 2021. But Europe has since made progress and reached its goal of vaccinating 70 percent of the adult population, although there are wide differences among countries.
While the current picture is brighter, the recovery faces hurdles from supplier bottlenecks such as the shortage of semiconductor parts that has held back production and sales in the auto industry, and from the spread of the Delta variant, which has seen case numbers rise in some countries amid worries that the fourth wave could mean more trouble for the economy this winter.
The decision comes as central banks, including the US Federal Reserve, are looking ahead to how they will exit massive pandemic support efforts that have come alongside increased government spending across the developed world.
Lagarde鈥檚 assessment will be closely watched because any shift in central bank policy can have wide-ranging effects on borrowing costs, stock and bond markets and growth. The ECB has played a key role in cushioning the blow from the pandemic by holding down bond rates. That has made it easier for governments to borrow and deliver crucial support to ordinary people and businesses large and small through tax breaks, loan guarantees and salary support.
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