Draghi's perfect timing likely to save Europe
European Central Bank is beginning a historic 1.1 trillion-euro ($1.25 trillion) bond-buying plan at a moment economists at Credit Suisse Group AG declare "propitious." Those at Bank of America Corp. say it "could not be better."
Why this rare optimism? The region may have actually turned a corner even before President Draghi announced the stimulus, lending the ECB's program a nice tailwind. It's like how it's easier to push a car that's already moving than one that's completely still. "QE's effectiveness may be boosted if it goes with the flow of an upturn in economic momentum," Credit Suisse's economics team said in a Jan. 23 report. "QE has been launched at a time in which market expectations for euro area growth are far too gloomy and inconsistent with hard data, let alone near-term prospects."
Aided by last year's easing of monetary policy as well as slides in the euro, bond yields and the price of oil, the bright spots include three months of gains in German business confidence, the first annual increase in car sales for seven years and a pickup in demand for bank loans.
Manufacturing
and
services expanded this month at the fastest rate in five as new orders rose also grew the most in the same time frame. Retail sales climbed three times faster than expected in November from the previous month. Growth in money supply is speeding up too.
At Bank of America, economist Gilles Moec says his 2015 growth forecast of 1.2 percent may end up being too low. Even if it isn't, growth will be twice as strong in the second half of this year as it was at the end of 2014.
For a nice preview, turn to what happened across the Atlantic after the Federal Reserve deployed its own stimulus. Each time the Fed deployed another round of QE (there were three), the economy performed better than investors had expected and that bolstered stock prices, according to Dominic Wilson, chief markets economist at Goldman Sachs Group Inc.
The chart below tracks a measure of how surprised financial markets were after the release of new economic data in the U.S. What tended to be more negative surprises (meaning the actual data was worse than expected) turned to positive surprises (meaning the actual data was better than expected) in the months after the bond-buying was announced. A measure of how surprised investors were after U.S. data releases.