ECB: June meeting provided little new information - Westpac

Elliot Clarke, Research Analyst at Westpac, suggests that the June meeting for the ECB Governing Council was expected to provide little new information and this expectation proved accurate.

Key Quotes

“Coming just three months after the latest round of policy expansion (which is still yet to be fully implemented, see below), it is too early for any further easing. Also, at the margin, growth outcomes have been more constructive in early 2016, GDP having advanced by 0.5% in Q1, 1.5%yr.

The latest round of activity forecasts produced by the ECB staff are broadly unchanged. Growth in 2016 is now expected to be a little stronger at 1.6%yr (versus 1.4%yr in March), but the forecasts for 2017 and 2018 remain at 1.7%yr and 1.8%yr. To these forecasts, the near and medium-term risks are still regarded as being tilted to the downside, despite the “balance of risks [having] improved on the back of the monetary policy measures taken and the stimulus still in the pipeline”.

Similarly for inflation, the current year forecast was edged up from 0.1%yr to 0.2%yr. However, the forecasts for 2017 and 2018 are unchanged, respectively 1.3%yr and 1.6%yr.

Noted in the press conference, there is currently no evidence of the ‘stronger’ pace of growth and ‘tighter’ labour market feeding into wages and inflation, except perhaps in Germany where unemployment is at historic lows.

Evident throughout the press conference was ongoing belief in the effectiveness of monetary policy.

The best evidence of monetary policy’s effectiveness remains the robust uptrend in consumer credit growth, which has been sustained since the end of 2013.

To see growth strengthen in 2017 and 2018 as the ECB anticipates, there needs to be a broad-based improvement in real investment and consequent gains for jobs and wages, which should feed through into stronger household demand. However, what is also clearly necessary is for fiscal policy to take a more active role across the continent, both with respect to immediate demand and, more importantly, the continent’s long-term productivity.

We are doubtful either of these supports for the economy will be fostered in the foreseeable future. Consequently, it seems inevitable that the ECB will have to expand is policy remit yet again at some (not too distant) point in time, most likely early-2017.”