The European Central Bank will halt its €2.6tn stimulus programme in January despite concerns that the eurozone is poised to slow down over the next couple of years.
Mario Draghi, the ECB boss, warned that rising uncertainty had forced the bank to downgrade its outlook for the currency bloc next year and the effects would continue to be felt in 2020.
He said growth would be limited to 1.7% in 2019, “owing to the persistence of uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility”.
The worse-than-expected outlook sent the euro tumbling on international exchanges as investors cut back their expectations for growth across the continent.
Figures showing that the German economy contracted in the last quarter were a clear signal that the eurozone had come under pressure from weakening global trade, while the slowing of the bloc’s other two major economies – France and Italy – only added to the worsening outlook.
However, the ECB said the recovery was strong enough that it could stop expanding its quantitative easing (QE) programme that has seen it pump €2.6tn into the eurozone economy to stoke growth and inflation from January.
Draghi said the existing stock of government bonds bought since the 2008 financial crash would continue to be repurchased, while a “significant monetary stimulus” was still needed. But he said it would be a long time before the ECB joined the US Federal Reserve and began selling them back into the market, as rates were fixed at their present levels “at least through the summer of 2019”.
It means the ECB joins the Bank of England by putting a freeze on its QE programme, unlike the Bank of Japan, which has been purchasing fresh bonds to add to its more than $4tn stockpile.
Daniele Antonucci, the chief euro-area economist at Morgan Stanley, said: “Despite a downwardly revised growth and inflation outlook, the central bank has confirmed that QE will stop at year end.”
He added: “Risks to growth are still balanced, but what’s new is that now the ECB sees them as moving to the downside. While no passive ‘operation twist’ has been announced at this meeting, the balance-sheet forward guidance has been strengthened.”