Purchasing managers surveys reported this week that economic growth has fallen to a nine month low, while Germany's Ifo survey showed business confidence at a 17-month low. Growth, said ING's Martin van Vliet, is "very weak".
But the ECB's effort to stimulate the economy by offering banks cheap funds seems to have failed. Take-up of targeted longer-term refinancing operations last week was disappointingly low, which – economists say – reflects the fact that banks don't want the ECB's cash because they believe they'll be unable to lend it onto companies.
Attention will now focus upon the ECB's announcement next Thursday of the details of its plan to buy asset-backed securities. ECB president Mario Draghi told MEPs this week that the size of the ECB's balance sheet "is expected to move towards the dimensions it used to have at the beginning of 2012". Jeremy Lawson at Standard Life said this would require the ECB to buy €1.4trn of assets. But, he said, the asset-backed securities market is not big enough for the ECB to buy on such a large scale.
Many doubt whether such buying would work. Even €1.4trn of buying would be less than that done by the Fed or Bank of England; it is equivalent to 15 per cent of euro area GDP whereas the Fed and Bank of England's quantitative easing was equivalent to around a quarter of GDP. And, says Michala Marcussen at Societe Generale, buying ABS's is "unlikely to have much impact" on growth. She believes the weakness of the yen and renminbi will limit how far the euro can fall, and that even if share prices do rise as the ECB prints money, consumer spending won't rise much in response. Mr Draghi himself shares these concerns. He told MEPs that "the success of our measures critically depends on a number of factors outside of the realm of monetary policy".
Some economists therefore expect the ECB to have to do even more than it will promise next week. Mr Lawson expects it to "announce full-blown QE" early next year.
