The European Central Bank is accelerating plans to unleash fresh growth-boosting measures as the eurozone's recovery loses steam and the risk increases of a geopolitical shock from the Ukraine crisis.

Mario Draghi, president of the ECB, said that the Bank had "intensified preparatory work" on quantitative easing as a potential new weapon in its battle against deflation and economic stagnation.

He revealed that the eurozone's policymakers were closer to using QE – which would inject cash into the eurozone by acquiring assets such as bonds from financial institutions – amid worrying signs that weak growth in the 18-member currency bloc is slowing further still.

"The recovery remains weak, fragile and uneven. In recent weeks, the data shows growth momentum is slowing down. It is quite clear that if geopolitical risks materialise, the next two quarters will show lower growth."

Recovery in the region is barely established, with GDP increasing by only 0.2% in the first quarter of the year.

Speaking at a press conference in Frankfurt, Draghi said sanctions and counter sanctions between the west and Russia were among the biggest risks facing the eurozone economy, with the potential to drive energy prices higher and depress exports. He stressed it was too early to say what the precise impact sanctions would have on the region.

"We are just at the beginning. We are still assessing what impact sanctions might have on the economy.

"Geopolitical risks are heightened. And some of them, like the situation in Ukraine and Russia will have a greater impact on the euro area than they … have on other parts of the world."

Earlier, the ECB's governing council left rates on hold at its July policy meeting, as expected.

The Bank delivered a raft of stimulative measures in June, but stopped short of announcing QE to breathe some life into the single currency bloc's economy and stave off the threat of a dangerous deflationary spiral.

Eurozone inflation fell to a near five-year low of 0.4% in July, dragged lower by accelerating falls in food, alcohol and tobacco prices, and a sharp drop in energy prices. Deflation is dangerous for economies as it encourages companies to delay spending in the expectation that prices will fall further, creating a spiral of slumping demand and further falls in prices.

The main interest rate was cut to a record low of 0.15% in June and the deposit rate was cut to -0.1% – meaning banks have to pay to park cash with the ECB in the hope it will encourage them to lend more to businesses and consumers.

The central bank also announced a €400bn (£317bn) package of cheap funding with the condition that the money is used to lend to companies outside the financial sector, and not for mortgages.

Draghi said on Thursday that those measures announced in June had been "successful" so far. He stressed that markets were expecting rates in the eurozone to remain very low for much longer than in the US. The ECB is pumping more stimulus into the eurozone as central banks in the US and the UK prepare to tighten policy.

The euro weakened against the dollar and the pound after his comments, and Europe's main stock markets were down.

He said the countries that had undertaken structural reforms were doing better than those that had not undertaken reforms, or those that had undertaken only limited reforms.

Holger Schmieding, chief economist at Berenberg, said that recent data had disappointed. "Despite buoyant leading indicators, an easing of austerity and some lessening of the peripheral credit crunch, the economy now seems to be expanding more slowly than in mid-2013."

Italy slipped back into recession this week, the French economy is flat, and Schmieding said Germany's economy might have contracted slightly in the second quarter after growth of 0.8% in the first three months of the year.

Escalating tensions in Russia threaten to weigh on business confidence and exports in Germany particularly – Russia's largest trading partner in the European Union.

The weakening outlook for Italy and Germany prompted Berenberg to downgrade its eurozone growth forecast from 1% to 0.8% in 2014, and from 1.6% to 1.4% in 2015.

The first official estimate for eurozone growth in the second quarter will be published next week by the EU's statistics office, Eurostat.

Draghi said the action taken to prevent the collapse of Portugal's Banco Espírito Santo was "swift and effective" and played down the suggestion that it was a worrying sign that there were still deep problems lurking in the eurozone's banking system that could plunge the region back into a full-blown crisis.