The full economic recovery of the Eurozone will be no earlier than 2022: the authoritative forecast is by the President of the European Central Bank, Christine Lagarde, who released it during the press conference at the end of the Eurogroup. Buy signals for the euro.
The information received after the last monetary policy meeting signaled to the European Central Bank a strong rebound of the euro area economy, confirming previous estimates, even though the level of activity remains well below those before the Covid crisis. The outlook remains highly uncertain.
ECB forecasts: slow recovery, -8% GDP 2020 estimates
According to the ECB, the economic recovery will be very slow, also because no one can today assess the damage of a possible resurgence of the Covid pandemic and other lockdowns. The estimates of the ECB analysts are rather harsh for this year, but slightly better than previously indicated, and the medium and long-term ones are rather modest.
The ECB’s research office predicts that the Eurozone’s GDP will decline by 8% in 2020, with a recovery at the rate of 5% in 2021 and 3.2% in 2022. Last June, expectations were for a a drop of 9.7% for this year, with a recovery of 5.2% in the next and 3.3% in the next.
Inflation under control, rates unchanged, Pepp and QE confirmed
The situation is under control as regards the inflation rate, expected to grow at an annual rate of 0.3% in 2020, 1% in 2021 and 1.3% in 2022. Compared to June, the forecasts for inflation they were confirmed for 2020 and 2022 and revised upwards for 2021 (from + 0.8%). With this situation, the Governing Council of the ECB has decided to leave interest rates unchanged: on main refinancing operations at 0%, on marginal lending operations at 0.25%, on deposits at -0.50%.
The ECB Council predicts that “rates will remain at or below current levels until inflation prospects converge firmly on a level close enough, but below 2%, in its projection horizon and this convergence will not be reflected consistently in the dynamics of underlying inflation”.
The Council also confirmed the Pandemic Emergency Purchase Programme (Pepp) of 1,350 billion, indicating that the purchases will continue at least until June 2021 and, in any case, until the critical phase linked to the coronavirus is concluded. In addition, purchases under the Quantitative Easing program will continue at a rate of 20 billion euros per month until December.
No reference to the strengthening of the euro
The ECB, as in the past, even in the first meeting after August did not mention the current moment of the euro and this, according to Kaspar Hense, senior portfolio manager of BlueBay Asset Management, “should be a buy signal, even if the fears for Brexit they weigh on Europe”.
The board also hinted at the good reception received by the latest TLTRO3s. This means, according to Hense, that this instrument will become increasingly important, as it has a strong impact because it does not provide for a lower limit and underlines the success of the Eurotower’s monetary policy actions.