Mon, Jan 26, 2015 - Page 15 News List

ECB stimulus raises hopes of recovery

BRIGHTER OUTLOOK:The central bank’s 1.1 trillion euro stimulus package is aimed at lowering inflation in the eurozone to 2 percent. The euro is also expected to drop

AP, DAVOS, Switzerland

Brazilian Finance Minister Joaquim Levy, left, Bank of Japan Governor Haruhiko Kuroda, second left, European Central Bank executive board member Benoit Coeure, center, Bank of England Governor Mark Carney, second right, and IMF deputy managing director Zhu Min, right, participate in a session on the final day of the World Economic Forum in Davos, Switzerland, on Saturday.

Photo: Bloomberg

The global economic outlook just got brighter following this week’s big stimulus package from the European Central Bank (ECB), leading policymakers from around the world said on Saturday.

In a panel at the World Economic Forum in Davos, they said a more buoyant Europe, alongside a prolonged period of low oil prices, could help shore up the global economy following a period of underperformance that has prompted many forecasters to reduce their growth forecasts.

“Lower oil prices and the big decision by the ECB could further improve world economic outlook,” Bank of Japan Governor Haruhiko Kuroda said.

The ECB’s planned 1.1 trillion euro (US$1.2 trillion) stimulus has been one of the main talking points at Davos and has helped counter some of the pessimism that has enveloped the global economy in the past few weeks. Stock markets around the world have surged amid hopes the ECB move could help boost the ailing economy of the 19-country eurozone.

However, ECB executive board member Benoit Coeure, said that on its own, the package would not be enough. He said governments across the region have to enact a raft of structural reforms to their economies, such as making their labor markets more flexible and encouraging businesses to invest.

“We have done our part, others have to do their part,” he said.

Coeure said he hoped the stimulus would give governments the space and encouragement to proceed with those measures.

“In the case of Europe, being patient is just a risk that we don’t want to take,” he said.

Some in Europe, particularly in Germany, are worried that the ECB’s bond-buying program might ease the pressure on governments to do more to reform their economies.

In Germany, there is also concern the stimulus is debasing the euro, as the prospect of more euros in circulation could weigh on the currency. The euro has fallen sharply since Thursday’s announcement, and is trading at 11-year lows at about US$1.12.

That is potentially good news for eurozone exporters, as it makes their products cheaper in international markets. A lower euro can also boost inflation as imports get pricier. The primary motivation behind the stimulus is to get inflation in the eurozone back toward the target of below 2 percent. Currently, prices are falling modestly.

Coeure said the lower euro was not a primary motivation of the ECB, stressing that the ECB does not have an exchange rate target.

The euro’s fall, Coeure said, “was part of the channel” by which the stimulus works, but “not the main consideration.”

Bank of England Governor Mark Carney also welcomed the ECB’s stimulus and said low oil prices might prevail for longer than many people think.

“That creates an opportunity that is considerable and possibly undervalued for the global economy,” he said.

However, Carney said that the current low interest rates around the world and the stimulus programs in Europe and Japan could prompt “excessive risk-taking.”

He said a better international supervisory framework means the world economy is more able to deal with that than it was before the global financial crisis in 2008.

In a separate development that could boost global growth, 21 WTO members — including Brazil, China, the EU, Japan, Russia and the US — backed efforts to conclude the so-called Doha Round negotiations, according to Swiss Federal Department of Economic Affairs Education and Research head Johann Schneider-Ammann.

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