ECB sounding less optimistic – ABN AMRO

According to analysts at ABN AMRO, recent speeches by ECB president Mario Draghi signal that the ECB has become less confident about its own rather positive economic forecasts.

Key Quotes

“On 8 November, Mr Draghi still asserted that ‘while some sector-specific data and selected survey results have been somewhat weaker than expected, the latest incoming information overall suggests that the broad-based expansion in the euro area is set to continue’.”

“Yet, roughly a week later, on 16 November, he mentioned ‘we have recently seen a loss in growth momentum’. Moreover, he referred to the fact that the central bank had had to lower its last two quarterly growth forecasts and that ‘actual data have also been weak’.”

“According to Mr Draghi, the recent economic slowdown is partly due to one-off factors that have temporarily disrupted car production, but also due to weaker trade growth, ‘which is broader-based’.”

“Nevertheless, Mr Draghi repeated the ECB’s earlier assessment that ‘the overall risks to the growth outlook are broadly balanced’. He explained that this was largely because the ‘underlying drivers of domestic demand remain in place, particularly the virtuous circle between employment, labour income and consumption’. Still, he admitted that employment growth had slowed down recently (to 0.2% qoq in Q3, down from 0.4% in Q2).”

“More generally, Mr Draghi mentioned that the ECB’s forward guidance on interest rates (at their present levels at least through the summer of 2019) is contingent on economic developments and that ‘if financial or liquidity conditions should tighten unduly or if the inflation outlook should deteriorate, this should be reflected in an adjustment in the expected path of future interest rates’. All in all, we think that Mr Draghi’s most recent speech is in line with our view that the ECB is likely to change its forward guidance on interest rates to signal that policy rates will remain unchanged even longer. Indeed, we expect the first ECB rate hike in March 2020.”