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"Maybe next year…" was basically the message sent today (Thursday) from the European Central Bank (ECB).
The European Central Bank left interest rates unchanged despite slightly lowering its outlook for the ailing Eurozone economy for the remainder of 2013. But, it sees a gradual recovery in 2014.
The ECB forecasts Eurozone GDP will contract by 0.6% this year, down from its March projection of 0.5%. However, it modified its 2014 estimates, predicting a return to growth at a rate of 1.1%.
"Euro-area economic activity should stabilize and recover on the course of the year albeit at a subdued pace," ECB President Mario Draghi said at a news conference.
The region has been stuck in recessionary mode for six consecutive quarters. But Draghi cited improving economic data in May as reasons for not taking immediate action.
"But we stand ready to act, and we will continue to monitor closely all incoming data," Draghi said at a news conference. He added the ECB would remain "accommodative" for as long as necessary.
Draghi also staunchly defended the ECB's actions, saying the bank's outright monetary transactions launched last year were "probably the most successfully monetary policy measure undertaken in recent times."
Draghi said the policy had no negative affect on markets.
"The ECB hasn't done anything to increase volatility in the markets," Draghi said. "If you think the ECB has done anything comparable to other central banks, we wouldn't agree."
After today's ECB briefing, the Stoxx Europe 600 Index fell 0.4% to 294.04, setting it on pace to close at the lowest level since late April. Banks suffered some of the steepest losses.
European bond yields plunged the most in three months, with Portugal taking the worst hit.
European Central Bank Buys Some Time
Last month, the European Central Bank cut its main interest rate to a record low 0.5%. The move appears to be paying off, but not quick enough for the Organization for Economic Co-operation and Development.
Last week, the OECD prodded the ECB to act more aggressively to combat the region's lingering recession and record unemployment.
Data earlier this week showed some signs of improvement. PMI stats showed the downturn in Eurozone factories eased for the first time in four months.
In addition, overall business sentiment was a tad more optimistic across services and manufacturing. However, the figures still marked 16 straight months of declining activity.
Yet the improvement in sentiment affords Draghi some time to consider future measures the ECB can cast to boost growth. The region has been besieged with its longest recession since the euro came about.
"We have a range of different instruments," Draghi said.
Slashing the deposit rate into negative territory, lending more money to banks, easing collateral rules, reviving the market for assets backed securities and providing investors with greater guidance on how long borrowing costs will stay low have all been cited as options the ECB "has on the shelves."
Draghi said the ECB stands ready to implement negative deposit rates. But he cautioned such a move may result in unintended and harmful consequences, such as risks contributing to stagnation with negative repercussions for global growth.
Negative rates could, however, ease a credit squeeze by encouraging banks in stressed southern Europe to lend more money to businesses and consumers than leaving it on deposit.
European Market Fall
Stock markets across Europe reversed course and headed lower following the ECB's decision and muted 2013 outlook.
"I think that investors probably felt that if the ECB is more pessimistic on growth, then it ought to be employing its big monetary guns," Guy Foster, head of portfolio strategy at Brewin Dolphin told MarketWatch. "Draghi talked about them, but now isn't following through."
The U.S. stock market today shrugged off the news.
Investors stateside were more focused on recovering from Wednesday's steep selloff. The Dow Jones Industrial Average tumbled 215 points, or 1.4%, to 14960.59, taking the benchmark below 15,000 for the first time since May 6. The rout started in Japan, with the Nikkei Stock Average plunging 3.8%, dragging European equities with it.
Thursday's trading was quiet and volume was light as U.S. investors await the crucial May jobs report. Estimates are for non-payroll growth of 170,000
A strong number could spook investors as it would make the case for the Fed to start tapering its market supportive bond buying purchases. The report will be released Friday at 8:30 a.m.
For more on what the European Central Bank is dealing with, read Eurozone Debt Crisis Exposes What EU Leaders Fear Most
Europe stocks drop as ECB cuts 2013 growth
- The Wall Street Journal:
EU Hits Back at IMF Report
- Bloomberg News:
Draghi Sees Economy Recovering as ECB Rates Left on Hold
- CNN Money:
Stocks steady as focus turns to jobs