Not tapering yet, despite chunky forecast upgrades

Having left the pace of its PEPP purchases unchanged and made big upgrades to its GDP forecasts, we think the ECB will start to taper the PEPP later this year. But we think it will eventually make an offsetting increase to other asset purchases and will leave its deposit rate unchanged for longer than most anticipate.
Andrew Kenningham Chief Europe Economist
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European Economics Update

Further thoughts on Italy’s presidential vote

Italy’s presidential election, which will begin next week, threatens to reignite political uncertainty that has been quiescent since Mario Draghi became prime minister last year. While we agree that losing Mr Draghi as prime minister would put the Recovery Plan at risk, there are some reasons for comfort. Drop-In (14:00 GMT, 26th Jan): UK Outlook -- More inflation, more interest rate hikes. Join our UK Economics team for a briefing on the 2022 outlook, including why we’re below consensus on growth but think the BoE will raise rates more than most expect. Register here.

21 January 2022

European Data Response

Euro-zone Consumer Confidence (Jan.)

January’s broadly unchanged reading for consumer confidence suggests that household spending might be holding up fairly well, despite a surge in Covid cases. We expect consumption to recover quickly once the Omicron wave fades and restrictions are eased. Drop-In (14:00 GMT, 26th Jan): UK Outlook -- More inflation, more interest rate hikes. Join our UK Economics team for a briefing on the 2022 outlook, including why we’re below consensus on growth but think the BoE will raise rates more than most expect. Register here.

21 January 2022

European Economic Outlook

Inflation falling but rates may rise to zero

We expect consumption to rebound from the Omicron wave within a few weeks, lifting euro-zone GDP to its pre-pandemic level in the first half of the year. But GDP will remain below its pre-pandemic path for the foreseeable future. Meanwhile, more stable energy prices will cause headline inflation to come down sharply, but the lingering effects of the pandemic will prolong supply-chain problems and wage inflation is likely to rise. As a result core inflation will stay above the ECB’s 2% inflation target throughout 2022. And against that backdrop, the ECB will end its net asset purchases by December and prepare the ground to raise its deposit rate to zero by the end of 2023.

21 January 2022

More from Andrew Kenningham

European Economics Update

ECB’s new target marks death of Bundesbank tradition

If confirmed, the ECB’s decision to adopt a 2% inflation target and allow room to overshoot it if needed would mark a historic shift towards the mainstream for the ECB. It would have no immediate implications for monetary policy, but in the longer run may imply policy would be looser for longer.

8 July 2021

European Chart Book

Activity taking off as hospitality reopens

The economy has continued to rebound strongly as governments have lifted almost all restrictions on retail and restaurants and eased rules on foreign travel. Restaurant bookings are back above pre-pandemic levels and the number of flights is rising steeply (no pun intended!). This rebound is likely to put a bit more pressure on inflation, which looks set to resume its upward course in the second half of the year after pausing in June. The latest statements from key policymakers suggest that the ECB is in no hurry to scale back its asset purchases, but we think the Governing Council will begin to taper its bond-buying in the coming months.

7 July 2021

European Data Response

German Industrial Production (May)

The small decline in German industrial production in May, which left it well below its pre-pandemic level, was due to another big fall in vehicle production. The problems in that, admittedly important, sector are likely to be resolved only gradually, but otherwise the German economy is recovering strongly.

7 July 2021
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