BRUSSELS — The European Central Bank (ECB) meeting on Thursday is the prime event for markets seeking clarity on the bank’s response to a stalled recovery, disappearing inflation and the sluggish pace of reform in the eurozone.

Inflation in the €9.6 trillion (S$15.7 trillion) economy dropped to a five-year low of 0.3 per cent last month and, as the months fly by, the bloc’s cushion against Japan-style deflation is getting smaller and smaller.

Increased geopolitical risks from the intensifying conflict in Ukraine forced Europe to impose sanctions on its third-biggest trade partner, Russia, a move that dented the faltering economic rebound even further.

“Pressure for the ECB to do more has returned, not only because of weak output/inflation data, but mostly following (ECB president Mario) Draghi’s speech in Jackson Hole,” said Mr Frederik Ducrozet, senior eurozone economist at Credit Agricole.

Mr Draghi had struck a new — for some, a ground-breaking — tone trying to cajole European governments into agreeing on a common approach to reforming their economies — a drive he sees as necessary to allow the stagnant eurozone to grow with verve.

He will have a hard time selling his message. Countries such as France and Italy are not growing and lag behind significantly with reforms. The ECB may have to reach deeper into its policy toolbox, with some analysts even betting on an interest-rate cut at the bank’s meeting on Thursday.

“We expect the ECB to cut all key interest rates by a further 10 basis points, thereby delivering a larger negative deposit rate (-0.20 per cent) as well as a refi rate even closer to zero (0.05 per cent),” Nomura wrote in its global market research.

The question most ECB watchers are asking is when, not if, the bank will embark on quantitative easing — the printing of money to buy government bonds, which is now the markets’ base scenario. Though central banks in the United States, Japan and Britain embarked on such a course several years ago, the ECB has been reluctant to follow suit. This is partly due to strong resistance from German central bankers and policymakers and the perceived complexity of buying state debt in a multinational bloc.

However, a number of economists deciphered Mr Draghi’s tone at Jackson Hole as signalling that deflationary risks had risen enough to merit further policy-easing, following a rate cut in June combined with measures to flood banks with more cheap money.

The eurozone recovery stalled in the second quarter and the outlook seems poor, even with the bloc’s powerhouse Germany expected to return to growth in the three months to this month.

“We tend to see the first bond purchases next year. We do not expect the ECB Council to act next Thursday because it wants to wait for the targeted longer-term refinancing operations to take effect,” Commerzbank wrote in its Week In Focus research.

A string of data about the health of manufacturing in the eurozone countries and Britain will shed fresh light on how European businesses feel about their prospects amid the deepening crisis in Ukraine. BLOOMBERG