For the first time in more than two years, European Central Bank President Mario Draghi neither announced new stimulus measures nor signaled they were in the pipeline at his news conference Thursday. He did leave the door open to an extension of the bond-buying program launched in 2015 beyond next March, and acknowledged some changes may be needed to make that possible. But Mr. Draghi also celebrated the “resilience” of the eurozone economy in the wake of the U.K.’s vote to leave the European Union, and his economists made the smallest adjustment possible to their growth forecast for next year. Here are five takeaways.
1) Bond Buying
In its policy statement, the ECB confirmed that it would continue to buy EUR80 billion ($90 billion) of bonds each month until March, and possibly beyond if inflation still isn’t moving toward its target. Mr. Draghi signaled an extension is likely, although by no means certain, repeating previous assurances that the bank’s governing council is prepared to act “if warranted,” and in particular if there are signs of “second round effects” such as workers settling for lower wage rises because they have grown used to very low inflation rates. He also said work is underway to make changes to the program should that be needed, an acknowledgment that the central bank may have difficulty finding enough bonds to buy if it continues to operate within its self-imposed restrictions.
The news conference was as long on things the ECB’s policy makers hadn’t discussed as it was short on action. Mr. Draghi said that over their two days of meetings, the governing council’s 25 members didn’t share their thoughts on helicopter money–viewed by some economists as the next big thing in central banking–or the possibility of following the Swiss National Bank and the Bank of Japan in buying corporate equities.
3) New Forecasts
The ECB’s economists produced their first forecasts for a post-Brexit world, but the key message was that the U.K.’s decision to leave the EU doesn’t pose much a threat to the eurozone’s modest recovery. Growth forecasts for both 2017 and 2018 were nudged down to 1.6% from 1.7% in June, while the inflation forecast for next year was also lowered slightly, to 1.2% from 1.3%. Those revisions don’t scream a need for further stimulus, although Mr. Draghi said the currency area faces “downside risks” that mean growth could be weaker than anticipated.
Mr. Draghi repeated his call on eurozone governments to do more to help the ECB by undertaking needed overhauls and spending more on roads and other infrastructure. Unusually, he spoke directly about Germany’s role, urging the government to loosen its purse strings, ahead of an appearance before the country’s lawmakers scheduled for Sep. 28, his first visit to the Bundestag since late 2012. “Countries that have fiscal space should use it,” he said. “Germany has fiscal space.”
5) The Defense
The ECB’s new forecasts suggest inflation won’t reach its target in 2017, having already been well short of 2% for the past three years. That might appear to be a sign that the series of stimulus measures launched since June 2014 haven’t worked that well. But not for Mr. Draghi, who pointed to a rise in lending to households and companies, and an end to the situation in which borrowers in southern Europe paid higher interest rates than their northern European counterparts. “I conclude that our policy has been very effective,” he said.