ECB

ECB: The finish line is in sight

CHART OF THE WEEK

The ECB meeting on 14 June saw Europe’s central bank announce it will be halving its securities purchases from €30 billion down to €15 billion in the final quarter of 2018. After that, it will focus on reinvesting funds from maturing securities. The ECB also announced it wants to maintain benchmark rates at their current levels until the summer of 2019. As always, the ECB’s actions will be subject to economic developments coinciding with its expectations.

ECB

 

OUR ANALYSIS

Mario Draghi confirmed that the central bank does not believe this year’s softer eurozone economic expansion will threaten the growth scenario. To date, economic indicators remain consistent with growth of 2%, which is above the eurozone’s potential growth rate. Unemployment continues to fall (it stood at 8.5% in April) and there are now some signs of rising wages growth.

The ECB’s balance sheet will peak at just over 40% of GDP. The US Federal Reserve equivalent was 25% at the end of 2014. The ECB’s statements indicate that its endgame strategy will be very similar to that of the Federal Reserve, namely a process that starts with a halt in asset purchases, followed by higher rates and doubtless the start of balance sheet shrinkage once rates have risen several times. Mario Draghi clarified that securities purchases will continue to be part of the central bank’s toolbox. Whether his successor will be as inclined to use them remains to be seen.

 

The opinion expressed above is dated 20 June 2018 and is liable to change.

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Julien-Pierre Nouen

Directeur des études économiques et de la gestion diversifiée