The Eurozone is going to need €2.4 trillion and three more years of quantitative easing to beat the threat of deflation, warns Standard & Poor’s.
Unemployment rates are still high, and growth is still sluggish seven years after the financial crisis. For these reasons, S&P says the European Central Bank is on track to double its €1.1 trillion bond-buying scheme that was launched in early 2015.
Meanwhile, inflation dropped back down into the negative territory for the first time in six months. Growth in consumer prices slid to -0.1% after being pushed lower by a 9% drop in energy prices. Core inflation stayed steady at 0.9%.
The European Central Bank expects to continueits €60 billion-a-month program through September 2016. The bank also stated that it would be willing to extend quantitative easing if necessary.
S&P’s prediction that the ECB will continue its program until the middle of 2018 extends far beyond analyst expectations of a 6-month extension.
But according to S&P, euro-QE’s stimulatory effects have been hindered by the rising value of the euro. The euro has been stronger against the dollar as concerns of a rate hike in the U.S. and uncertainty in the markets caused issues.The single currency could face challenges in the future should the U.S. raise interest rates and the Chinese economy slow even further.