New ECB stimulus will not have a significant impact on the eurozone economy
The European Central Bank‘s new stimulus package won’t have much impact on the coronavirus-torn eurozone economy, reads the main takeaway from Reuters’ survey of economists.
Despite the ECB’s decision to increase procurement for pandemic emergencies to 1.85 trillion euros and extend the program by nine months, the economic outlook for the European bloc remains bleak.
According to the Reuters consensus forecast, which was attended by more than 80 economists, the eurozone economy contracted 2.5% in the last quarter after growing 12.5% in the third quarter and is expected to grow 0.6% this quarter, which almost half as much as forecast a month ago (1.1%).
It was then expected to rise by 2.3%, 1.9% and 1.0% in the second, third and fourth quarters, which is virtually unchanged from last month‘s forecasts compiled shortly before the ECB introduced additional stimulus..
More than 70% of economists, or 28 out of 39, who answered the supplementary question, said that the latest ECB policies will not have a big impact on the euro area economy. Others said it would give a significant boost.
«Interest rates are already so low and the policy is so soft that at the moment monetary policy cannot affect investment or consumer demand. Thus, we do not think that the ECB can strongly influence the economy at the present time.», – said Christoph Weill (Christoph Weil), Senior Economist, Commerzbank.
Of those surveyed on January 11-15, more than 25% expected the eurozone, where growth fell to historic lows in the first half of 2020, to enter a technical recession again, defined as a two-quarter economic contraction contract.
On an annualized basis, the economy was expected to contract 7.3% in 2020, roughly in line with the latest survey, but the median has been lowered to 4.5% this year from 5.0% last month. Growth forecast for 2022 raised from 3.5% to 3.9%.
«The start of the year continues to bring bad news for Europe as the health situation worsens. «With restrictions already in full force in several countries, the short-term risks to the economic outlook are clearly reversed, especially as vaccination adoption is still slow», – said Angel Talavera (Angel Talavera), Head of European Economics at Oxford Economics.
«Newer and more infectious variants of the virus mean further deterioration can happen very quickly».
More than 70% of respondents, or 30 out of 42 who answered a separate additional question, said that the economy will return to pre-crisis levels within two years, including six of them responding that this will happen within a year. The rest said it would last more than two years.
Growth in the two largest economies in the eurozone was expected to be much lower than this in 2021 expected in October. Germany was forecast to grow 3.7% from 4.6%, while the forecast for France was downgraded to 5.9% from 6.9%.
Inflation in the eurozone, which remained in negative territory for five straight months last year, is expected to remain below the ECB’s target of just under 2%, averaging 0.9% in 2021 and 1.3% in 2022 year.
A small majority, more than 52% of economists, or 21 out of 40 who answered a separate question, said that a significant increase in inflation is likely. 17 said it would remain around 2020, while two said deflation was more likely.
«Historically, any inflated inflation expectations may be untenable. But we have very favorable fiscal policy and a number of structural factors that could support higher inflation in the future.», – said Florian Hense (Florian Hense), Senior Economist for Europe at Berenberg.