President of the European Central Bank (ECB), Christine Lagarde, said on Thursday (April 8) that the world economic outlook has improved. However, Lagarde warned that the Covid-19 crisis will weigh on eurozone’s growth over the coming months but longer term risks are receding and growth will pick up once lockdown measures are lifted.
“Overall, the risks surrounding the euro area growth outlook have become more balanced, although downside risks associated with the pandemic remain in the near term,” she said in a statement that echoes ECB’s policy stance after its March meeting.
The ECB left key interest rates at record-low levels during its March meeting, and said it would conduct emergency bond purchases at a significantly higher pace over the next quarter, aiming to support eurozone’s fragile economic recovery. Meanwhile, the bank kept its overall inflation outlook broadly unchanged, but revised slightly up its 2021 GDP forecast to 4 percent, compared with 3.9 percent projected in December. Also, the central bank sees the EU growing by 4.1 percent 2022, down from 4.2 percent previously estimated.
The ECB head also said that the €1.85 trillion euros set aside in a Pandemic Emergency Purchase Programme (PEPP) may not have to be spent in full but the bank also reserved the right to increase this quota, if market conditions warrant.
The ECB’s PEPP was initiated in March 2020 to counter the serious risks to the monetary policy transmission mechanism and the outlook for the eurozone posed by the coronavirus outbreak.
The PEPP is a temporary asset purchase programme of private and public sector securities. ECB’s Governing Council decided to increase the initial €750 billion envelope for the PEPP by €600 billion on 4 June 2020 and by €500 billion on 10 December, for a new total of €1.85 billion.
In her statement at the meeting of the IMF’s International Monetary and Financial Committee, Lagarde concluded that it is crucial to refrain from withdrawing both monetary or fiscal policy support prematurely.