Europe is throwing money at the region’s deepest downturn since the Great Depression. It still may not be enough to spur a strong recovery in the second half of the year.
“The combination of the fiscal policy and the monetary policy … that hopefully will be critically important to restore economic conditions,” ECB President Christine Lagarde said at a press conference.
Investors welcomed both moves, with the euro trading up 0.6% against the US dollar. But economists warned that while such policy steps are necessary, they can only do some much at an uncertain juncture.
More ‘fireworks’
The ECB’s decision to expand its bond-buying program was seen as a crucial step to keep money flowing through the eurozone and provide support for Italy, whose government debt could otherwise come under pressure. Still, the increase was even bigger than some analysts had expected.
“Real stimulus fireworks,” said Carsten Brzeski, chief eurozone economist at the Dutch bank ING.
The stark forecast for the region’s ailing economy has pushed policymakers to do more. The European Commission predicts that GDP in the 19 countries that use the euro will contract by 7.75% this year, a record. The ECB thinks GDP will shrink by 8.7% this year.
“Incoming information confirms that the euro area economy is experiencing an unprecedented contraction,” Lagarde said Thursday.
The ECB currently expects the downturn to bottom out this quarter, followed by a bounce back in the second half of the year.
