Euro economy chugs along as ECB tries to figure out future
MARIO Draghi reckons the European Central Bank has engineered a moderate and steady recovery in the euro area, and economists agree.
Respondents in a Bloomberg survey predict a roughly consistent pace of growth right through 2017.
That revival from a doubledip recession and debt crisis has depended heavily on an exceptionally loose monetary stance, meaning that when the ECB president and his colleagues speak in Frankfurt this week, investors will be seeking hints on how long the policy will last.
It’s not a simple topic. President- elect Donald Trump’s surprise victory last week, alongside the looming exit of the UK from the European Union, prompted Governing Council members Jens Weidmann and Vitor Constancio to warn of high uncertainty.
As the ECB prepares new forecasts for its December meeting, it must ponder what the next speed bumps might be – such as populist gains in elections in the currency bloc – and how to overcome them.
“The uncertainty facing the economy is there; we’ve got Brexit, no one knows what Trump will do, and we will see elections that have clear anti-European and anti-trade trends,” said Jens Kramer, an economist at NordLB in Hanover, Germany. “That will set the wrong impulses for growth, and probably the ECB has this in the back of their minds.”
A less trade-friendly global atmosphere is key threat to the euro zone, where exports are compensating for mediocre domestic demand. Trump pledged throughout his campaign to dismantle or renegotiate deals, and the UK is set to formally begin Brexit talks early next year. Also clouding the outlook is a referendum in Italy and elections in France, the Netherlands and Germany, all with a rise in populist opposition.
Against that backdrop, financial policy makers and executives are meeting in Frankfurt for a series of conferences known as Euro Finance Week. Speakers include Deutsche Bank Chief Executive Officer John Cryan, who will give remarks before Draghi, Weidmann and German Finance Minister Wolfgang Schaeuble make appearances last Friday.
Speaking at the opening of the event on Monday, Constancio said that while some argue that “recent geopolitical developments” will have benefits, “the real negative effects of heightened uncertainty can come later.”
On Tuesday, economic data will probably confirm that the 19-nation euro area grew 0.3 per cent in the third quarter. Figures will also be released for Germany, Italy, the Netherlands and Portugal.
Economists in the Bloomberg survey forecast the same pace of growth this quarter and in early 2017, with a slight pickup to 0.4 per cent in the third quarter.