Global economy hopes raised after European stimulus

AP News
Posted: Jan 24, 2015 11:05 AM
Global economy hopes raised after European stimulus

DAVOS, Switzerland (AP) — The global economic outlook just got brighter after this week's big stimulus from the European Central Bank, leading policymakers from around the world said Saturday.

In a panel at the World Economic Forum in Davos, they said a perkier Europe, coupled with a prolonged period of low oil prices, could help shore up the global economy following a period of underperformance that has prompted many forecasters to reduce their growth forecasts.

"Lower oil prices and the big decision by ECB could further improve world economic outlook," said Haruhiko Kuroda, governor of the Bank of Japan.

The ECB's planned 1.1 trillion-euro ($1.2 trillion) stimulus has been one of the main talking points at Davos and has helped counter some of the pessimism that has enveloped the global economy in the past few weeks. Stock markets around the world have surged amid hopes the ECB move could help boost the ailing economy of the 19-country eurozone.

However, Benoit Coeure, an executive board member at the ECB, insisted that on its own, it won't be enough. He said governments across the region have to enact a raft of structural reforms to their economies, such as making their labor markets more flexible and encouraging businesses to invest.

"We have done our part, others have to do their part," he said.

Coeure hoped the stimulus will give governments the space and encouragement to proceed with those measures.

"In the case of Europe, being patient is just a risk that we don't want to take," he said.

Some in Europe, particularly in Germany, are worried that the ECB's bond-buying program may ease the pressure on governments to do more to reform their economies.

In Germany, there's also concern the stimulus is debasing the euro currency — the prospect of more euros in circulation can weigh on the currency. The euro has fallen sharply since Thursday's announcement, and is trading at 11-year lows around the $1.12 mark.

That's potentially good news for eurozone exporters as it makes their wares cheaper in international markets. A lower euro can also boost inflation as imports get pricier. The primary motivation behind the stimulus is to get inflation in the eurozone back toward the target of just below 2 percent. Currently prices are falling modestly.

Coeure insisted the lower euro wasn't a primary motivation of the ECB, stressing that the ECB doesn't have an exchange rate target.

The euro's fall, he said, "was part of the channel" by which the stimulus works but "not the main consideration."

Mark Carney, governor of the Bank of England, also welcomed the ECB's stimulus and said low oil prices may prevail for longer than many people think.

"That creates an opportunity that is considerable and possibly undervalued for the global economy," he said.

Carney did issue one note of caution, warning that the current low interest rates around the world and the stimulus programs in Europe and Japan could prompt "excessive risk-taking." However, he said a better international supervisory framework means the world economy is more able to deal with that than it was before the global financial crisis in 2008.

In a separate development that could boost global growth, 21 members of the World Trade Organization — Brazil, China, the European Union, Japan, Russia and the United States — backed efforts to conclude the so-called Doha Round negotiations, according to Swiss Economics Minister Johann Schneider-Ammann.

Schneider-Ammann, who chaired Saturday's meeting on the sidelines of the Forum, said the trade ministers made a commitment to complete the round, mainly in the unresolved areas of agriculture, industrial products and services.

"It was the clearest commitment today I ever had before (seen)," he said.

The next major WTO ministerial conference is slated for December in Nairobi, Kenya.

Last year, the WTO pulled off a major deal to reduce customs red tape that proponents say could boost global commerce by $1 trillion annually. That deal, aimed at lowering the time and costs for goods to cross borders, was the first multilateral trade agreement in the organization's 20-year history — but it was still just a small part of the overall Doha Round.

"There was a lot of finger pointing and a lot of accusations," WTO Director-General Roberto Azevedo told a news conference. "We decided we had to change the conversation .... I think that people are open-minded and, at this point, we don't know what that conversation is going to yield."


John Heilprin contributed to this report.