The European Central Bank has ditched a cap on how many bonds it can buy from any single euro zone country, clearing the way for potentially unlimited money-printing as it scales up its response to the COVID-19 outbreak.
Major central banks are lining up to pump ever-growing amounts of cash into the financial system to counter fallout from the virus, which is expected to trigger a global recession this year.
The ECB made its move – a historic and potentially divisive one – overnight, saying in a legal document it would not apply self-imposed limits under a new 750 billion euro bond purchase scheme aimed at shoring up governments, businesses and households in the face of the epidemic.
The document paves the way for the ECB to hold more than a third of any one country’s debt – a level that it is close to reaching with benchmark bond issuer Germany and some smaller countries including Portugal.
It will also allow the ECB to focus its stimulus where it is most needed and extend it for as long as it wants without resorting to its emergency bond purchases, known as Outright Monetary Transactions, two sources told Reuters.
But it leaves the ECB exposed to legal challenges and accusations that it is bankrolling governments directly.
Portugal’s central bank said on Thursday the country’s once-bailed out economy will enter a coronavirus-driven recession this year, hurt by a drop in private consumption and investment, as well as the collapse of the export sector.
In its economic bulletin, the first data set showing the impact the fast-spreading coronavirus will have on Portugal’s economy, the country’s central bank said the gross domestic product will drop between 3.7% and 5.7% in 2020.
The unemployment rate is set to increase to between 10.1% and 11.7% this year, compared with 6.6% in 2019.
“The outlook for the Portuguese economy deteriorated sharply and significantly as a result of the impact of the COVID-19 pandemic,” the Bank of Portugal said in a statement.
The outbreak will have “very significant and potentially long-lasting effects”, it said.
It said Portugal, which completed a strict EU bailout programme in 2014 in the wake of the 2008 global financial crisis, should return to economic growth over the next two years.
It projected growth of 0.7% to 1.4% in 2021 and 3.1% to 3.4% in 2022.
The government also announced a 9.2 billion euro package worth 4.3% of annual GDP to support workers and provide liquidity for affected companies.
On Thursday, the government announced a set of new measures to help companies and families, including a six-month suspension of the payment of loan instalments. Those unemployed or in mandatory isolation are automatically eligible.
“This measure will provide very significant relief given the financial efforts made by companies and families,” said Economy Minister Pedro Siza Vieira.
Boosted by the exports sector, the tourism industry and private investment, the economy had been steadily growing since it exited its bailout programme in 2014. On Wednesday, Portugal reported a budget surplus of 0.2% of gross domestic product in 2019 – its first in 45 years of democracy – after a deficit of 0.4% in 2018. That day Finance Minister Mario Centeno said all scenarios pointed to a recession, however on a positive note, he also asserted that this budget surplus indicates that Portugal is in the best possible position in its democratic history to encounter this crisis.