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Europe to lag a year behind US in economic recovery

16 Mar '21
2 min read
Pic: Shutterstock
Pic: Shutterstock

The European Central Bank would step up its bond-purchase stimulus to support an economy whose recovery is expected to lag a year behind the United States, held back by slow vaccine rollouts and less relief spending by governments, the bank recently said. Over the next quarter, the purchases would be conducted “at a significantly higher pace than during the first months of the year,” it said.

The central bank for the 19 countries that use the euro said the move is aimed at preventing a premature rise in borrowing costs while businesses are still struggling with coronavirus restrictions like curfews and shutdowns.

Yields on long-term government bonds have risen by about 0.3% since the start of the year in the eurozone. That is not much, and rates remain low. But it is too early for the eurozone to withstand higher rates, usually associated with recovering growth and inflation.

ECB President Christine Lagarde told a news conference that the rise in market borrowing rates, “if left unchecked, could translate into a premature tightening of financial conditions for all sectors of the economy. This is undesirable.”

The bond purchases have the effect of pushing down bond yields, which are used as benchmarks for borrowing across the region. So the ECB’s move would in theory help keep credit cheap for companies.

Fibre2Fashion News Desk (DS)

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