ECB Moves Fuel Global Recession Fears

Gloomy economic clouds keep gathering, and the latest example comes from Europe, as retailers and payment services providers shift more of their focus to the all-important holiday shopping season.

In case you haven’t read this already, here is the latest news: The President of the European Central Bank (ECB) Mario Draghi has, according to CNBC, “urged governments to take fiscal measures to supplement the central bank’s monetary stimulus and reinvigorate the eurozone economy.”

The comments came after the ECB announced a stimulus package consisting of a lower main deposit rate and a new bond-buying program. ECB also relaunched its quantitative easing (QE) program and said it would begin buying 20 billion euros worth of assets monthly starting Nov. 1. The interest rate was slashed 10 points to negative 0.5 percent, a record low. The central bank could drop the rate even more, depending on inflation.

“In view of the weakening economic outlook and the continued prominence of downside risk, governments with fiscal space should act in an effective and timely manner,” Draghi said at a press conference on the stimulus package, the news outlet reported.

More Action

The ECB action is only the latest sign of what may be coming down the road for the global economy.

Just a few weeks ago, news emerged that could paint a less-than-positive picture for China. Indeed, to bolster the country’s economy, the central bank said it was reducing the amount of cash that banks need to have as reserves for the third time in 2019, which released $126 billion – or 900 billion yuan.

The country’s second-quarter economic data showed 6.2 percent growth, but some believe the numbers are worse than what is being officially released, The Wall Street Journal reported. China’s reported data came in close to Beijing’s target, a figure that has been published quarterly for the past 4.5 years. But a multinational index of Chinese production indicates much smaller growth coupled with fewer workers returning to their jobs.

Despite showing economic stability, global economists, companies and investors believe China’s economic picture is weaker than what is being officially reported. Some economists say the numbers are likely three percentage points lower after accounting for tax revenue, property sales and other concrete measures.

Earlier this year, the managing director of the International Monetary Fund (IMF) said economic growth around the world has slowed down, which has left things in a precarious position. Christine Lagarde said the world’s economy hasn’t been as strong since the fund’s last forecast update in late January of last year. However, a recession isn’t likely, she said at the time.

Varied Views

In fact, there are varying views of the likelihood of a recession.

For instance, analysis from Citizens Bank suggests corporates remain quite optimistic, even as they acknowledge a possible impending economic downturn. According to the bank, U.S. corporates are still in growth mode, with the Citizens Business Conditions Index remaining above 60 – an Index above 50 is considered reflective of corporate expansion and improved business conditions. “This indicates that despite the questions inherent in a recovery of this length, U.S. companies remain in a growth mode powered by healthy fundamentals,” Citizens said less than a month ago.

And certain markers for commerce continue to give a more positive view of certain areas of the economy – areas more directly related to digital payments and retail. For example, cross-border payments are expected to surge over the next few years as the economy becomes increasingly global and interconnected. These transactions reached $144 billion in value in 2014 and could hit $240 billion by 2024. That means financial institutions are facing increased pressure to make cross-border payments fast and seamless as consumers grow used to instant P2P payments and such products in other sectors. As the global economy becomes increasingly interconnected, smaller businesses and consumers will also need access to systems that enable easy cross-border payments.

Even so, as the 2019 holiday shopping season approaches, worries about recession continue to grow.