Davos forum hails European stimulus
DAVOS, Switzerland — The global economic outlook just got brighter after last week’s big stimulus from the European Central Bank, leading policymakers from around the world said Saturday.
In a panel at the World Economic Forum in Davos, they said a perkier Europe, coupled with a prolonged period of low oil prices, could help shore up the global economy following a period of underperformance that has prompted many forecasters to reduce their growth forecasts.
“Lower oil prices and the big decision by ECB could further improve world economic outlook,” said Haruhiko Kuroda, governor of the Bank of Japan. Curbs pessimism
The ECB’s planned $1.2 trillion stimulus has been one of the main talking points at Davos and has helped counter some of the pessimism that has enveloped the global economy in the past few weeks. Stock markets around the world have surged amid hopes the ECB move could help boost the ailing economy of the 19-country eurozone.
However, Benoit Coeure, an executive board member at the ECB, insisted that on its own, it won’t be enough. He said governments across the region have to enact a raft of structural reforms to their economies, such as making their labor markets more flexible and encouraging businesses to invest.
“We have done our part, others have to do their part,” he said.
Coeure hoped the stimulus will give governments the space and encouragement to proceed with those measures.
“In the case of Europe, being patient is just a risk that we don’t want to take,” he said. Fear for the euro
Some in Europe, particularly in Germany, are worried that the ECB’s bond-buying program may ease the pressure on governments to do more to reform their economies.
In Germany, there’s also concern the stimulus is debasing the euro currency — the prospect of more euros in circulation can weigh on the currency. The euro has fallen sharply since Thursday’s announcement, and is trading at 11-year lows around the $1.12 mark.
That’s potentially good news for eurozone exporters as it makes their wares cheaper in international markets. A lower euro can also boost inflation as imports get pricier. The primary motivation behind the stimulus is to get inflation in the eurozone back toward the target of just below 2 percent. Currently prices are falling modestly.
Coeure insisted the lower euro wasn’t a primary motivation of the ECB, stressing that the ECB doesn’t have an exchange rate target.
In a separate development that could boost global growth, 21 members of the World Trade Organization — Brazil, China, the European Union, Ja- pan, Russia and the United States — backed efforts to conclude the so-called Doha Round negotiations, according to Swiss Economics Minister Johann Schneider-Ammann.