FRANKFURT, Oct 25 (Reuters) - The European Central Bank maintained on Thursday its long-standing view that risks to the economy are broadly balanced, playing down a long list of signs that growth may have failed to stabilise and continues to slow.
“The risks surrounding the euro area growth outlook can still be assessed as broadly balanced,” ECB President Mario Draghi told a news conference. “At the same time, risks related to protectionism, vulnerabilities in emerging markets and financial market volatility remain prominent.”
With a global trade war looming, the risk of a hard Brexit increasing and industrial production taking a hit over the summer quarter, the euro zone economy has underperformed expectations, raising the risk that the ECB will struggle to wean the bloc off stimulus. The ECB had debated last month whether to downgrade its risk assessment, suggesting that policymakers are increasingly concerned that the slowdown is not due to one-off factors as previously thought.
The problem with downgrading the assessment is that investors could then anticipate a policy response that the ECB is not prepared for, especially since inflation, the ECB’s mandate, remains on the path seen earlier.
With much of the bank’s firepower exhausted, policymakers argue that the bar on extending bond purchases is high and any discussion about interest rates is premature since the ECB has guided markets for no change “through” next summer, an unusually long horizon for a policy guidance. (Reporting by Balazs Koranyi; Editing by Catherine Evans)