In World Economy News 02/06/2017
The European Central Bank will sound a little more optimistic on the economy at its June 8 meeting and could raise its assessment of risks to balanced or begin discussing shift from its bias to ease policy, a Reuters poll of economists showed.
The central bank is not likely to signal any change yet to the pace of its asset purchases, which will continue at 60 billion euros per month until December. And fewer than 10 percent of the regular survey panel said the ECB would drop the possibility of increasing those purchases.
While the latest poll of over 65 economists taken in the past week showed the euro zone economy will hum along at a decent pace of growth, their own modest assessment of the outlook for growth and inflation was not changed in any significant way.
That suggests there is still some way to go before the central bank decides that it needs to remove its extraordinary stimulus to the euro area economy. ECB President Mario Draghi said on Monday interest rates need to stay at record low levels despite the resurgence in the economy.
“This makes for a difficult situation for the ECB, as robust growth and weak price pressures bring about diverging expectations of policy,” said Bert Colijn, senior economist at ING.
“The ECB will be cautious with its plans for monetary policy to avoid a ‘taper tantrum’, but a change in communication on the balance of risk and forward guidance can be expected next week.”
Almost 90 percent of the respondents who answered an extra question said the central bank is likely to change its guidance or risk assessment at the June 8 meeting.
The central bank is expected to do that by declaring economic risks broadly balanced and removing the reference to lower rates in its communication.
That is in line with a separate exclusive Reuters story based on four sources.
The latest preliminary data showed euro zone inflation eased by more than expected in May, supporting policymakers’ views that only small adjustments should be made to stimulus and rates.
“May’s weak inflation rate suggests that the ECB is unlikely to be in any rush to change anything more than communication,” added ING’s Colijn.
With euro zone economic growth on its best run since the bloc’s crisis a decade ago, conservative countries may pressurize the ECB to start planning an exit from its ultra-easy policy, setting up June as a potentially key meeting.
While a surprise burst of 0.5 percent quarterly growth in the first-quarter improved market sentiment and optimism about the euro zone economy, the outlook has remained somewhat similar.
The latest poll showed a stable quarterly growth rate of 0.4 percent in each quarter from the second half of this year to end-2018, which is not enough to bring inflation back to the ECB’s target of close to 2 percent.
Inflation is forecast to average 1.6 percent this year before easing to 1.5 percent next. But it is not expected to hit the central bank’s target even in 2019.
When asked what could steer the euro zone economy off course from its current growth path a majority of economists picked a premature removal of ECB stimulus and a rising instability in debt markets.
Some economists also chose a stronger euro as a reason for the euro zone economy to stutter.
The recent resurgence in the economy has coincided with a weaker currency and if the single currency strengthens then that could weigh.
Source: Reuters (Polling, analysis and graphic by Vivek Mishra and Indradip Ghosh; Editing by Ross Finley and Catherine Evans)
