Battered Eurozone Could See More Stimulus in the Fall

European Central Bank President Christine Lagarde is confronting a cloudy outlook for the eurozone economy.

Photo: Xinhua/Zuma Press

FRANKFURT—European Central Bank officials signaled that they could roll out new monetary stimulus in the fall to shore up economic growth, as the region wrestles with rising unemployment and a possible wave of corporate bankruptcies.

While ECB officials signaled relief that the 19-nation currency union had avoided an even deeper downturn, they warned of possible turbulence ahead as governments start to wind down policies aimed at supporting businesses and workers through the coronavirus pandemic, according to the minutes, published Thursday.

Infections are surging again across much of Europe, and governments are racing to prevent a full-fledged second wave of the pandemic.

“Uncertainty about the economic outlook and the pandemic is keeping the central bank on high alert,” said Carsten Brzeski, an economist with ING Bank in Frankfurt.

The ECB left its policy mix unchanged at its July 15-16 policy meeting after unveiling around $3 trillion of stimulus since March, measures that put the bank’s response to the Covid-19 pandemic on a par with the Federal Reserve’s.

Recent economic data suggest that the eurozone economy is recovering after contracting by 12.1% in the three months through June from the previous quarter, exceeding the 9.5% drop in the U.S. over the same period.


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The officials will next meet to determine ECB policy on Sept. 9-10, when they will have fresh staff forecasts for growth and inflation that could help to steer their policy decisions. Analysts said the ECB was unlikely to unveil a new monetary stimulus in September, but could do so later this year if the economy fails to perk up.

But the outlook is cloudy. The euro has risen strongly against the dollar in recent weeks, hurting the region’s large exporters in international markets. Tens of millions of European workers are still tapping job-furlough schemes, under which governments replace part of the income they have lost from working fewer hours. Some of these state-funded schemes are set to expire over the coming months, after which unemployment could rise.

ECB officials warned there was “no room for complacency,” and stressed that the bank “had the tools and policy space to take further action if needed,” according to the minutes.

The officials debated whether they would need to use up all of the bank’s €1.35 trillion ($1.6 trillion) program, known as the Pandemic Emergency Purchase Program, unveiled in separate decisions since March. Under the program, the ECB plans to buy eurozone government and corporate debt through June 2021.

The minutes showed officials agreed to increase the size of the program and to tweak other policy tools if necessary. They pointed to the risk that Europe’s unemployment rate could rise in a lasting way, and that European businesses could soon face solvency issues as government support schemes are withdrawn.

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Write to Tom Fairless at [email protected]

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