tennessean.com

Sponsored by:
brand
Dec 7, 11:12 AM EST

ECB seen expanding stimulus amid Trump, Italy uncertainties


AP Photo
AP Photo/Michael Probst

Multimedia
A district summary of the Beige Book
Measuring economic stress by county nationwide
Mall malaise: shoppers browse, but don't buy
Unemployment by the numbers
Family struggles with father's unemployment
Saying an affordable goodbye
Hard times hit small car dealer
Latest Economic News
ECB seen expanding stimulus amid Trump, Italy uncertainties

German industrial production up only slightly in October

Australian economy contracts 0.5 percent in September

South Korea's Park would leave economy mired in challenges

Brazil's government proposes setting retirement age at 65

Bank of England chief: Prosperity must be better distributed

Will Italy's political drama spawn a new eurozone crisis?

US services firms grow at fastest pace since October 2015

Lufthansa, GE invest in aircraft engine plant in Poland

Get used to it: Economists see "new normal" of slow growth

Interactives
Greece's Debt Threatens to Spread
State budget
gaps map
Auto industry problems trickle down, punish Tennessee county
Women give old Derby hats a makeover in tough economy
S.C. town deals with highest unemployment in South
How mortgages were bundled and sold as securities
Tracking the $700 billion financial bailout
Tracking the year's job losses
State-by-state foreclosures since 2007
Credit crisis explained
Presidents and their economic legacies
Lexicon of the financial crisis
Americans' addiction to debt

FRANKFURT, Germany (AP) -- Faced with weak growth and inflation across the 19-country eurozone, the European Central Bank is expected to extend its stimulus program for at least another six months when it concludes its policy meeting Thursday.

Last month's victory by Donald Trump in the U.S. election and the uncertainty generated by the recent Italian referendum, which prompted Premier Matteo Renzi to offer his resignation, will make the decision all the more straightforward, analysts say.

Though Trump's victory has helped revitalize stock markets, there are concerns that his approach to trade may hurt global growth.

And Renzi's hefty defeat in the vote on constitutional changes he hoped would streamline decision-making in Italy has piled pressure on Italian banks, with the third-largest, Monte dei Paschi di Siena, scrambling to secure money to plug a black hole.

A decision to not extend the ECB's stimulus program - in which it buys 80 billion euros ($86 billion) in bonds a month - past the current March deadline could worsen concerns about Italy, an economy that's barely grown for years.

"The fallout from a Trump presidency on global growth and the impact of the Italian referendum on the banking system has increased the risks around the growth outlook," said Ben May, lead eurozone economist at Oxford Economics.

As a result, May said, the ECB will likely take a "cautious response" to handling the expiration of its stimulus efforts.

ECB President Mario Draghi has already indicated that the bank's future stance will be clarified on Thursday, when it will have compiled new inflation and growth forecasts.

A decision to extend the stimulus program is facilitated somewhat by a global rise in bond yields following Trump's victory that makes more bonds available for the ECB to purchase.

Analysts said an extension from the stimulus program's current end-date of March 2017 could be accompanied by an explanation on how the bank brings it to an end. Many expect the bank will start tapering off the purchases after the anticipated six-month extension to avoid a cliff-edge end to the program that could jolt markets.

The main aim of the ECB's government and corporate bond purchases is to keep market borrowing rates low and boost lending, which in turn stoke inflation and, ultimately, growth.

The evidence of success is mixed.

At 0.3 percent in the third quarter of the year, the eurozone's economic growth is still anemic. Unemployment, however, is falling consistently across the eurozone, especially in Spain and Greece, two economies battered by the region's recent debt crisis.

There are also signs that the stimulus is nudging up inflation, though the rise in oil prices over the past year has been the main factor. In the year to November, consumer prices across the eurozone rose by 0.6 percent. Though still way below the ECB's target of just below 2 percent, November's annual rate was the highest in two and a half years.

"We firmly believe that the ECB will come out on the side of 'supporting the economy' in order to achieve their main inflation target," analysts at RBC Capital Markets said in a note.

---

Pylas reported from London.

© 2016 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Learn more about our Privacy Policy and Terms of Use.