ECB Keeps Monetary Stimulus On Track Amid Recession Concerns

FRANKFURT—The European Central Bank kept its aggressive monetary stimulus unchanged on Thursday, seeking to support eurozone governments and businesses through a fresh wave of Covid-19 infections that likely tipped the bloc back into recession early this year.

The resurgence of the virus and a sluggish rollout of vaccines have kept businesses shut across swaths of Europe this year, driving a divergence with the U.S. economy, which is benefiting from a hefty dose of government spending and speedier Covid-19 vaccinations.

The ECB said in a statement that it would continue to buy eurozone debt under an emergency €1.85 trillion bond-buying program, equivalent to $2.2 trillion, through at least March 2022. It said it would buy those bonds at a “significantly higher pace” during the first months of this year, repeating a pledge made last month.

Sovereign-bond yields have risen across Europe this year, partly reflecting brighter economic prospects, but also a spillover from the robust recovery in the U.S. That puts pressure on European governments, which are increasing spending to support workers and firms hurt by virus-related shutdowns.

The rise in bond yields has slowed in recent weeks, however. Vaccination rates across Europe have picked up as supply bottlenecks eased, approaching U.S. speeds in places, and recent economic surveys suggest business confidence is trending upward.

Governments in Germany and Italy have signaled they are willing to run large deficits this year as they spend more money to support their economies, noted Andreas Billmeier, European economist at Western Asset Management.

“This gives you medium term confidence that we’re not going to repeat the error of 10 years ago,” when European governments sought to reduce spending too quickly, hurting the economic recovery, Mr. Billmeier said.

The eurozone economy is likely to grow at an annualized rate of 6% in the second quarter of 2021, after contracting 1% in the first three months of the year, according to


The U.S. economy will likely grow at an annualized rate of almost 10% in the second quarter after around 5% in the first quarter, JPMorgan said.

“The pace of vaccinations [in Europe] does appear to be taking a big step up this month and our modeling suggests the current set of restrictions in France and Italy have reduced mobility enough to bring the flow of new cases back under control,” JPMorgan analysts wrote in a note. “But this is not the case for Germany and Spain.”

Meanwhile, bank lending data published by the ECB this week suggested tightening credit standards for businesses and lower demand for borrowing, a potential brake on the recovery. Europe is also preparing for major elections in France and Germany over the next 12 months, which could upend government spending plans.

Write to Tom Fairless at [email protected]

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