FRANKFURT, Germany — The European Central Bank pushed forward Thursday with its plan to gradually phase out its monetary stimulus, saying it is confident in the region's growth. But its president, Mario Draghi, warned that the United States' trade dispute with several major powers has become a key economic concern.
The chief monetary authority for the 19 countries that use the euro confirmed Thursday that its bond-buying stimulus would be cut to 15 billion euros ($17.4 billion) a month from 30 billion euros after September.
The decision was widely expected after being mapped out in detail at the bank's June 14 meeting. The ECB set out its plans to halt the stimulus in December and postpone any interest rate increase until well after that. Analysts do not expect a rate hike until the second half of 2019 at the earliest.
Draghi said at a post-decision news conference that the eurozone was seeing "an on-going, broad-based expansion." Trouble in markets in emerging markets like Argentina and Turkey "so far does not show any sign of spillover," he said.
Asked about concerns that Italy's new populist government will break with Europe's rules on public spending and rekindle a debt crisis in the region, he said that top officials had given assurances they would respect the rules, but that there had also been conflicting statements and that the actual budget decisions would be what counts. "Words have changed many times," he said. "We are waiting for facts."
For now, the questions over Italy do not seem to be affecting other countries, Draghi noted. "So far, it's pretty much an Italian episode."
The key threat to the global economy right now, Draghi said, is "uncertainties related to rising protectionism." U.S. President Donald Trump has imposed tariffs on aluminum and steel imports and on some Chinese goods, raising concerns about a cycle of retaliation that could hinder global trade.
The ECB, like other major central banks, is removing extraordinary support for the economy left over from the Great Recession and the eurozone debt crisis of 2010-2012 that saw several indebted member countries bailed out by the other members.
The stimulus withdrawal is accompanied by a caveat that the bank could change plans in case of an unexpected downturn. That seems unlikely at the moment, though analysts say a weakening of growth could delay the first interest rate rise, which the ECB currently expects to come no earlier than in the second half of 2019.
The eurozone grew 0.3 percent in the second quarter over the quarter before, and the European Commission forecasts 2.3 percent growth for the full year. Unemployment has fallen to 8.2 percent from over 12 percent in 2013 as the eurozone continues to heal from the Great Recession and the debt crisis. The recovery remains uneven, however, with unemployment at 19.5 percent in Greece and 15.1 percent in Spain.
The ECB's stimulus exit is part of a global trend: the withdrawal of stimulus from the rich world's major monetary authorities, including the U.S. Federal Reserve, the Bank of England and the Bank of Japan. They loosened monetary policy — lowering interest rates and pumping new money into the financial system— to support the economy after the global financial crisis that deepened 10 years ago with the bankruptcy of U.S. investment bank Lehman Brothers. A crisis over debt in Greece, Ireland, Portugal, Spain, Cyprus and Italy further held back the 19 countries that use the euro as their currency.
The ECB's purchase of government and corporate bonds from banks is a way of pushing newly created money into the banking system, and hopefully into the economy. The aim has been to raise inflation from dangerously low levels near zero and help banks give more loans to businesses to boost growth.
Low interest rate benchmarks had the same goal. The ECB's lending rate to banks is at a record low of zero, and it has imposed an unusual negative rate on deposits that it takes from commercial banks of minus 0.4 percent. That forces banks to pay a penalty for keeping excess funds at the central bank and provides an incentive to lend instead.
Stimulus withdrawal should have wide-ranging effects. Low rates and bond purchases with newly created money lifted the prices of assets such as stocks and bonds. Raising rates and tightening monetary policy could make conservative holdings such as savings accounts, money market funds and certificates of deposit relatively more attractive for investors compared with riskier assets like stocks. That is why the ECB, Fed and other central banks are moving carefully to return rates to more normal levels.