Specters of deflation, virus haunt ECB meeting
The European Central Bank is expected Thursday to prepare the ground for new stimulus measures, armed with a new set of economic forecasts and amid signs of a resurgence of the coronavirus pandemic.
The ECB will publish its latest assessments on the eurozone's growth prospects through to 2022, which will be closely scrutinized for signs of whether the worst of the pandemic's devastating economic impact is over.
Inflation trends will also be key as fears of deflation are fueled by sinking oil prices and consumers putting off purchases in the grim economic climate.
The Frankfurt-based institution has unleashed unprecedented firepower to help the bloc fight its worst crisis.
It is in the process of pumping 1.35 trillion euros ($1.59 trillion) into the eurozone economy through its pandemic bond-buying programme, known as PEPP.
But with no clear prospect of an end to the health crisis in sight, investments are lacklustre while households are also hesitant to make use of the huge credit lines. Across the Atlantic, a major policy shift by the US Federal Reserve has also thrown a spanner in the works. In a stunning change, the Fed last week said it would now allow inflation to accelerate to let the economy generate more jobs.
That means it will hold off from raising interest rates for now even if inflation moves about the central bank's target of 2.0 percent.
And that, in turn, has led to a significant weakening of the US dollar against the euro, something that could make eurozone exports less competitive. BNP Paribas economist William De Vijlder said the ECB was faced with "three headaches".
"Inflation is too low and declining, the strong euro reinforces this development and there is concern that the change in the longer-term goal of the Fed... will complicate matters," he said.
Asian equities struggled Monday following last week's painful sell-off, with a mixed US jobs report offsetting a pledge from Federal Reserve boss Jerome Powell that interest rates would remain rockbottom for years.