The European Central Bank is gearing up for another round of stimulus to boost the moribund euro zone economy.

Amid rapid growth in Ireland and preparations for a tax cut in January, the bank’s stance points to a panorama of uncertainty in the world outside. Ireland finds itself in something of a sweet spot, with the advancing recovery fanned by the weak euro, low oil and interest rates, and benign conditions in the US and Britain. But conditions are far from benign in the wider euro zone.

Further ECB stimulus would tend to support favourable near-term trends in Ireland. Take note that Draghi’s talk of action sent the euro down against the dollar. At the same time, the ECB’s signals underscore anxiety that global growth is slowing as the Chinese economy comes off the boil. Such a slowdown would not be good for Ireland, given high dependence on external trade.

Relative clarity from ECB president Mario Draghi speaks volumes. “The attitude is not wait and see but work and assess,” he said after talks in Malta. Decisions are likely in December, when ECB governors next meet to set rates.

Bond-buying scheme

The ECB might expand or prolong its €1 trillion bond-buying scheme, the aim being to boost inflation via increased economic activity. It might further cut the negative deposit rate it charges banks to hold their money, in the hope that they would lend the money instead of sheltering it in the ECB safe harbour.

In light of German resistance to quantitative easing, Draghi’s remarks are all the more striking. The ECB likes ambiguity but he came close to a direct alert of action to come. Indeed Draghi said a few ECB governors wanted an immediate reduction from the minus 0.20 per cent deposit rate, which he previously cast as the lower bound from which no further cuts were possible. As hints from top central bankers go, it was a pretty big one.

In the backdrop, of course, is stubbornly low inflation. Euro zone consumer prices actually dropped 0.1 per cent in September, glaringly at odds with the ECB’s push to bring inflation towards its official target of below but close to 2 per cent. A big issue here is the decline in the price of commodities such as oil. Excluding drastic conditions at the height of the global crisis in 2009, oil has suffered its biggest year-on-year drop since the mid-1980s.

Draghi also expressed concern about economic conditions in emerging markets, and China particularly. His observations bear scrutiny. He identified four channels through which the Chinese slowdown could hit the euro zone. First was direct trade. This was “not very significant” as China represents 6 per cent of euro zone trade in general. Although China represents 10 per cent of German trade, Draghi said that was “not too exceptional”.

Second was the indirect channel of oil and commodity price reductions implied by any recession in China. The financial channel was third, although Draghi said that too did not carry “very significant” euro zone exposure. Still, financial markets tend not to take fright gently.

Fourth was the confidence channel. “Growth in China has not affected confidence in the rest of the world and specifically in the euro area,” Draghi said.

Chinese growth

While there is chatter in financial markets that conditions in China are rather worse than Beijing says, Draghi stressed that the International Monetary Fund has reiterated its 6 per cent growth forecast for China this year. “Of course any very large surprise might have the potential to affect confidence worldwide.”

If that stands as a statement of the obvious, it would seem that Draghi is cautioning against over-reaction to the situation in China. It is clear, however, that things there are not moving in the right direction - and that presents risks.

Besides saying it was too early to tell, Draghi had nothing to impart of the risks to growth arising from the Volkswagen emissions scandal.

Of the migration crisis, Draghi also said it was too early to pinpoint the impact.

“There is . . . probably a need of very significant investments in this increase in labour supply, and also in how these public investments in knowledge, in education are going to be financed.”

The current QE scheme predates troubles over China, Volkswagen and migration. The challenge is all the greater now.