"A significant degree of monetary stimulus continues to be necessary to ensure that financial conditions remain very favourable and support the euro area expansion, the ongoing build-up of domestic price pressures, and, thus, headline inflation developments over the medium term."
This was what European Central Bank (ECB) president Mario Draghi told his audience (and the world) at his press conference straight after the ECB's last monetary policy meeting held on the July 25.
Because, as he put it: "The risks surrounding the euro area growth outlook remain tilted to the downside, reflecting the prolonged presence of uncertainties related to geopolitical factors, the rising threat of protectionism, and vulnerabilities in emerging markets."
"Incoming economic data and survey information continue to point to somewhat slower growth in the second and the third quarters of this year.
|Sponsored by OnePath Life|
Join us on the New Path
"Inflationary pressures remain muted and indicators of inflation expectations have declined."
When the bank's Governing Council meets again on September 12, it'll find the "rising threat of protectionism" has risen further with the escalation of the US-China trade war.
The recently-released IHS Markit Eurozone manufacturing PMI survey gave credence to Draghi's statement at the July press conference that the economic outlook "is getting worse and worse and it is getting worse and worse in manufacturing".
While the final manufacturing PMI reading improved a bit to 47.0 in August from 46.5 in the previous month, it was the second lowest reading since April 2013 and the seventh straight month indicating contraction in factory activity.
Forward indicators suggest that the malaise won't end anytime soon. As Markit highlighted: "Production and new orders continue to fall as confidence hits lowest since November 2012" and "Employment declines for fourth month running during August".
As for inflation, the annual rate of growth in headline consumer prices (HICP) have decelerated to 1.0% in July from 1.3% in the previous month, with the core inflation rate similarly easing to 0.9% from 1.1%.
Yet, several ECB members are voicing their dissent over a stimulus package: Bundesbank vice-president Lautenschlage said "nein" to QE; Dutch central bank president Knot, thinks the outlook is not weak enough to justify QE but is open to a rate cut; Austrian governor Nowotny's against buying equities for stimulus; and, Bundesbank president Weidmann announced his opposition to a big stimulus package.
To be sure, the ECB's TLTRO III (that came into effect this month) - designed to "help to preserve favourable bank lending conditions and the smooth transmission of monetary policy" - hasn't had time yet to filter through to economic activity.
However, Super Mario would want to go out with a bang (his last month in office) and do "whatever it takes" to mitigate the growing risks to growth and inflation.