The European Central Bank (ECB) isn’t done expanding its bond-buying program yet, according to economists, despite recent remarks by policy makers that the outlook has brightened slightly.
More than half of respondents in a Bloomberg survey predict an increase in the ECB’s 1.35 trillion-euro pandemic purchase program ($1.5 trillion) by December, with most expecting an extension and a top-up of 500 billion euros. The Governing Council is seen keeping its policy unchanged when it meets next week.
Expectations that the ECB will need to do more highlight the extraordinary uncertainty surrounding the recovery from the crisis. While officials have said the latest data point to a relatively sharp bounceback, they also stressed the euro-zone economy is still on course for its biggest contraction ever—almost 9 percent this year—and the extent of damage to companies and labor markets is still hard to judge.
Only this week, the European Commission came out with a bleak assessment, warning that the risks remain “exceptionally high and mainly to the downside.” It also argued that a widening gap between richer and poorer countries is a “powerful illustration” for why joint fiscal support is key.
“It is far too early to give any all-clear on the economy,” said Carsten Brzeski, chief economist at ING Germany. It will take more data “before a better picture of the shape of the second stage of the recovery will emerge. This second stage of the recovery will determine any next steps for the ECB.”
What Bloomberg’s economists say
“The emergency aid seems to be working. With plenty of assets still to buy, there’s no need for a new policy announcement next week. And with the fire-fighting over, the central bank can now turn to the recovery phase of the crisis.”
—Maeva Cousin, David Powell and Jamie Rush
President Christine Lagarde signaled in a Financial Times interview this week that she’s in no rush to ramp up stimulus again as the ECB allows current measures to unfold. Policy-makers added 500 billion euros to their crisis bond-buying plan in June and extended it by six months to the middle of next year.
Another such push would lift total holdings—including earlier purchases—to just under 5 trillion euros, equivalent to about 40 percentof 2019 output. Waiting with any announcement until December would give policy makers a chance to look at their first set of economic forecasts for 2023.
Investors the world over are questioning how deep central banks will need to dig into their toolbox. The Bank of England increased its asset-purchase program last month but slowed the pace of buying, while some Federal Reserve policy-makers are expressing concern that the resurgence in US virus cases will derail the recovery there. Bloomberg News