ECB’S latest stimulus to have little impact on euro zone economy

BENGALURU:

The European Central Bank’s new policy package will have little effect on the euro zone’s coronavirusravaged economy, according to the forecasts of a Reuters poll of economists.

Despite the ECB’S decision to top up its pandemic emergency purchases by half a trillion euros to 1.85 trillion euros and extend the programme for nine months, the bloc’s economic outlook remains bleak. The Reuters poll consensus of over 80 economists forecast the euro zone economy shrank 2.5 per cent last quarter after expanding 12.5 per cent in the third quarter and was expected to grow 0.6 per cent this quarter, nearly half the 1.1 per cent predicted a month ago.

It was then expected to expand 2.3 per cent, 1.9 per cent and 1.0 per cent in the second, third and fourth quarters, largely unchanged from last month’s forecasts collected just before the ECB introduced more stimulus.

Over 70 per cent of economists, or 28 of 39 who replied to an additional question, said the ECB’S latest policy moves would have little impact on the euro zone economy. The others said it would provide a significant boost.

“Interest rates are already so low and policy is ultra-loose, so for now, monetary policy cannot impact investment or consumer demand. Thus we do not think the ECB can influence the economy strongly at this time,” said Christoph Weil, senior economist at Commerzbank. “We expect a bitter couple of months. Lockdowns will dampen the economy and we expect falling GDP in the last quarter of 2020 and in the first quarter of this year. So technically a recession”.

Of the participants in the Jan. 11-15 survey, over 25 per cent expected the euro zone - where growth plumbed to a historic low in the first half of 2020 - to have again entered a technical recession, defined as two consecutive quarters of contraction.

On an annualised basis, the economy was expected to have shrunk 7.3 per cent in 2020, roughly in line with the last poll, but for this year, the median was downgraded to 4.5 per cent from 5.0 per cent last month. For 2022, the growth forecast was upgraded to 3.9 per cent from 3.5 per cent.

“The start of the year continues to bring bad news for Europe as the health situation deteriorates. With lockdowns already being extended in several countries, short-term risks to the economic outlook are clearly skewed to the downside, especially as the vaccination roll-out is still slow,” said Angel Talavera, head of Europe economics at Oxford Economics.