The European Central Bank (ECB) left its monetary policy stance unchanged at its September 13 meeting. Net asset purchases will end in December, but with the Bank’s maintaining its stock of assets, the reinvestment of redemptions will maintain substantial stimulus. No increase in policy interest rates is signaled until at least after the end of next summer. Note that the main ECB refinancing rate is still zero.

Attention, therefore, focused on the updates of the ECB staff’s macroeconomic forecasts as presented by ECB President Mario Draghi. The Bank’s assessment of the economy is upbeat, viewing the expansion as ongoing and broad-based. The economic growth projections reflected very small downward revisions. GDP growth for the current year is now forecast at 2.0% instead of 2.1%. Growth in 2019 is forecast to be 1.8%, also a reduction of 0.1% from the previous projection. The moderation from the 2.5% pace in 2017 is due mainly to a weakening of global trade, while domestic demand remains strong.

The Eurozone Purchasing Managers’ Index (PMI) for August continued to indicate a robust economy but one with a growing imbalance. Growth accelerated in the two largest economies, Germany and France, while Italy, the third largest, experienced a sharp growth slowdown, and Spain also looks weak. A disturbing development is that business confidence concerning future activity has declined to its lowest level in 23 months. For Italian and Spanish companies, expectations are at a five-year low. Global trade tensions and political uncertainties, including the difficult BREXIT negotiations and the battle in Italy over the budget, are undermining confidence.

The positive factors cited by Draghi as underlying the ECB’s upbeat analysis related to the underlying strength of the domestic economies in the region. These factors include the continuing monetary stimulus, record-low interest rates, a more positive fiscal stance, and the strength of the labor market, with healthy employment growth and rising wages that are fueling consumer demand. Draghi argued that the strength of the economy balances the downside risks from global factors. He also offered assurances with respect to Italy, noting that the rise in Italy’s borrowing cost did not spread to other member states, and the cost has recently declined.