Second wave of the pandemic in Europe, notably in France, and the resulting new restrictions are adding to the uncertainty and weighing on the recovery. The recovery has been uneven, uncertain and incomplete and now risks losing momentum. European Central Bank is already supporting the economy with a pandemic emergency program of bond purchases that are pumping 1.35 trillion euros ($1.58 trillion) in newly created money into the economy, a step that lowers market borrowing costs and helps keep credit flowing to businesses.
Bank may eventually add more stimulus due to weak inflation and slowing growth because of the upsurge in infections, and to help deal with any new restrictions on travel and activity that may be imposed by governments to slow the spread. Low inflation is one reason analysts who follow the bank think more stimulus is on the way. Annual inflation was minus 0.3% in the 19-country eurozone in September, down from minus 0.2% in August. While the negative figure has been influenced by one-time factors such as a cut in value-added tax in Germany, weak inflation also can be a sign of an underperforming economy. The ECB’s goal is below but close to 2%. In addition to the bond purchases, the ECB has held its interest rate benchmarks at record lows. It’s rate for short-term lending to banks is zero; for deposits left overnight from banks, the rate is negative 0.5 percent. The negative rate means banks pay a penalty for leaving money at the central bank instead of lending it to business.