CHART OF THE DAY: Here’s Why The ECB Has To Undertake Quantitative Easing

Getty/Bruno Vincent

Attention Currency traders.

If you are wondering if ECB president Mario Draghi is going to announce the ECB’s own version of quantitative easing after this Thursday’s Governing Council meeting, here is a simple chart from the Bank of International Settlements (BIS) Annual Report, released yesterday, which shows it must.

Over the past seven years, central bank balance sheet expansion has been synonymous with recovery from the depths of the GFC.

On Friday, Japanese inflation accelerated to a 3.7% year on year rate, its fastest in years. In the UK, BoE governor Mark Carney is already talking about withdrawing stimulus and in the US, regardless of Janet Yellen’s recent dovishness, there is evidence that the Fed’s quantitative easing has not only goosed stocks higher but also is helping build momentum in the real economy.

So far the ECB has dragged its feet but if ever there is a chart which highlights the eurozone’s need for quantitative easing, this is it.

The ECB and EU economic growth stands out as needing balance sheet expansion. (Charts: BIS)

If the ECB wants to avoid deflation and get growth moving then it has to start quantitative easing. This of course means the euro might be on borrowed time against the Aussie, Canadian and US dollars, not to mention Sterling as the BoE readies for higher rates.