Business & Tech

European Central Bank seen extending stimulus

Uncertainies over US election, Italy premier’s offer to resign

Italian Premier Matteo Renzi acknowledged defeat in a constitutional referendum and announced he will resign on Monday. GREGORIO BORGIA/ASSOCIATED PRESS

FRANKFURT — Faced with weak growth and inflation across the 19-country eurozone, the European Central Bank is expected to extend its stimulus program for at least another six months when it concludes its policy meeting Thursday.

Last month’s victory by Donald J. Trump in the US election and the uncertainty generated by the recent Italian referendum, which prompted Premier Matteo Renzi to offer his resignation, will make the decision all the more straightforward, analysts say.

Though Trump’s victory has helped revitalize stock markets, there are concerns that his approach to trade may hurt global growth.


And Renzi’s hefty defeat in the vote on constitutional changes that he hoped would streamline decision-making in Italy has piled pressure on Italian banks, with the third-largest, Monte dei Paschi di Siena, scrambling in order to secure money to plug a black hole.

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A decision to not extend the ECB’s stimulus program — in which it buys 80 billion euros ($86 billion) in bonds a month — past the current March deadline could worsen concerns about Italy, an economy that’s barely grown for years.

‘‘The fallout from a Trump presidency on global growth and the impact of the Italian referendum on the banking system has increased the risks around the growth outlook,’’ said Ben May, lead eurozone economist at Oxford Economics.

As a result, May said, the European Central Bank will probably take a cautious response in deciding how to handle the expiration of its stimulus efforts.

The central bank’s president, Mario Draghi, has already indicated that its future stance will be clarified on Thursday, when it will have compiled new inflation and growth forecasts.


A decision to extend the stimulus program is facilitated somewhat by a global rise in bond yields following Trump’s victory that makes more bonds available for the bank to purchase.

Analysts said an extension from the stimulus program’s current end-date of March 2017 could be accompanied by an explanation on how the bank brings it to an end. Many expect the bank will start tapering off the purchases after the anticipated six-month extension to avoid a cliff-edge end to the program that could jolt markets.

The main aim of the bank’s government and corporate bond purchases is to keep market borrowing rates low and boost lending, which in turn stoke inflation and, ultimately, growth.

The evidence of success is mixed.

At 0.3 percent in the third quarter of the year, the eurozone’s economic growth is still anemic. Unemployment, however, is falling consistently across the eurozone, especially in Spain and Greece, two economies battered by the region’s recent debt crisis.