The European Central Bank is ready to deploy more monetary stimulus to aid the recovery if needed as the pandemic damps prospects for the economy, according to President Christine Lagarde.
Addressing European lawmakers on Monday, Lagarde called the recovery across the 19-nation euro zone uncertain and incomplete, with consumers cautious to spend and companies reluctant to invest.
“The public health crisis will continue to weigh on economic activity and poses downside risks to the economic outlook,” Lagarde said in a video conference with members of the European Parliament’s Economic and Monetary Affairs Committee. The Governing Council “continues to stand ready to adjust all of its instruments, as appropriate.”
Resurgent coronavirus infections are threatening new restrictions, jeopardizing the economic progress made since lockdowns earlier this year plunged the region into a deep recession.
Policy makers have started to stake out their positions ahead of a discussion on whether the ECB should add support to nurture the economy. Most economists predict the 1.35 trillion euro ($1.6 trillion) emergency bond-buying program will be expanded this year — probably in December when new economic forecasts are published.
The ECB said earlier this month that the recovery is in line with its baseline projections. Yet some of the most recent surveys have shown that while manufacturing is still improving, services are shrinking again.
One of the most worrying consequences for ECB officials — including recently Executive Board member Fabio Panetta and Bank of Spain Governor Pablo Hernandez de Cos — is flagging inflation. The annual rate of consumer prices fell below zero in August for the first time in four years.
Lagarde said headline inflation in the euro area is expected to remain negative over the coming months — in part due to a stronger euro. Preliminary inflation data for September are due on Friday.
“The Governing Council will carefully assess all incoming information, including developments in the exchange rate, with regard to its implications for the medium-term inflation outlook,” Lagarde said.