Top euro zone econ­omy fore­caster op­ti­mistic on growth

The Pak Banker - - MARKETS/SPORTS -

The re­cent pickup in euro zone eco­nomic growth will be main­tained this year but the Euro­pean Cen­tral Bank will have to ease pol­icy again to boost weak in­fla­tion, ac­cord­ing to the top fore­caster for the cur­rency bloc in polls last year.

Jo­hannes Mayr, head of eco­nomic re­search at Bay­ernLB in Mu­nich, is op­ti­mistic Ger­many will lead Europe in 2016 and while Chi­nese growth may dis­ap­point, there is no risk of a sharp slow­down or re­ces­sion.

"The cur­rent up­swing will con­tinue in 2016 and gain slightly more mo­men­tum due to higher fis­cal spend­ing from gov­ern­ments, to fi­nance ex­penses from the refugee cri­sis, and slightly higher global de­mand," he said.

Bay­ernLB topped a list of 60 fore­cast­ers in the euro zone and Ger­many that were graded by StarMine for ac­cu­racy on a set of key monthly data re­leases in 2015, in­clud­ing GDP, in­fla­tion, con­sumer con­fi­dence, un­em­ploy­ment rate, ECB de­posit rate as well as the pur­chas­ing man­agers' sur­veys of busi­ness ac­tiv­ity.

But while eco­nomic growth may be on a cycli­cal up­trend, Mayr pre­dicts in­fla­tion will re­main too low for the ECB's com­fort due to per­sis­tently weak global oil prices.

ECB Pres­i­dent Mario Draghi sig­naled last month that fur­ther pol­icy eas­ing could be com­ing within months, lead­ing mar­kets to price in a de­posit rate cut in March. Econ­o­mists polled by Reuters soon af­ter the pol­icy meet­ing also pre­dicted a de­posit rate cut in March but gave even chances for an in­crease in monthly as­set pur­chases.

Mayr said be­fore the ECB meet­ing: "The fo­cus will be on quan­ti­ta­tive eas­ing and the ECB could ex­pand its as­set pur­chases, ei­ther in March or June. An­other cut in the de­posit rate is highly likely."

Sim­i­lar calls for ex­pan­sive pol­icy helped Bay­ernLB top last year's Reuters ac­cu­racy league, so Mayr has a fair de­gree of con­fi­dence in his lat­est views. "We had a good call that the ECB's job was not done when it started its QE pro­gram. So we ex­pected the ECB to com­mu­ni­cate rather ag­gres­sively through­out 2015 and loosen pol­icy fur­ther. They did just that, help­ing to keep in­ter­est rates low."

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