In his somewhat gloomy speech, the European Central Bank (ECB) Governing Council member Ewald Nowotny suggested the bank may cut its economic forecast next Thursday, pointing to numerous signs that the recovery in the bloc has stalled.

“It’s no secret that we are seeing somewhat of a downturn in the economy,” Nowotny told reporters on late Thursday. “Germany is no longer able to be a locomotive for growth.”

Asked about inflation and unemployment, he told reporters: "I am concerned as well. What I have presented here is not a really great success story. We had expected an upturn in the eurozone and we have an upturn - 2014 is better than 2013 - but it is weaker than expected."

Souring outlook

The ECB, which currently predicts economic growth of 1% and inflation of 0.7% this year, is scheduled to present new quarterly staff estimates on September 4. It lowered its prognosis in June. On the same day, the rate-setting committee convenes, with no decision expected.

Nowotny, who is also head of the Austrian central bank, seem to understand the problems of recovery very well, as his domestic institution in June almost halved the full-year growth forecast for Austria to a 0.9% growth of gross domestic product (GDP) from the previously expected 1.6% hike.

Stimulus eyed

However, he refused to comment on a possible launch of an asset-purchasing program in the bloc, referring to the quiet period before the rate decision. "I cannot give any exact numbers for the eurozone (as) we will have the (ECB) forecasts next week, but it is no secret that we are seeing the economy tend to cloud up," he said.

He also refused to be drawn into the renewed austerity talk in the bloc saying policymakers had to consider both supply and demand. "In my view the central issue at the moment is the demand side. We have massive unutilized resources."

He was more willing to speak about existing measures, especially about the so-called Targeted Longer-Term Refinancing Operations (TLTROs), a wave of cheap loans to the bloc's lenders unveiled in June and aimed to boost credit. "Any bank treasurer who doesn't go for it, is making a big mistake," he said at a dinner with journalists. "We expect this to be taken up to a great extent."

Two rounds of the loans - in September and December - together with six further additional quarterly allowance rounds will bring up the size of the framework to a maximum of €1 trillion, according to ECB projections, which were upwardly updated in July. Analysts estimate that banks will borrow €300 billion in the initial TLTRO round, according to the Bloomberg Monthly Survey.

WBP Online