On Thursday 14 December, the European Central Bank (ECB) substantially revised its growth forecasts for the Eurozone upwards, putting them at 2.4% of GDP in 2017, 2.3% in 2018, 1.9% in 2019 and 1.7% in 2020.
Compared to September, our growth forecasts have been substantially increased, said the President of the ECB, Mario Draghi, following the meeting of the Governing Council. Two months ago, the Frankfurt-based monetary institute predicted Eurozone growth of 2.2% of GDP in 2017, 1.8% in 2018 and 1.7% in 2019 (see EUROPE 11869).
The ECB is no longer talking of recovery, but economic expansion, with impetus that will continue and even increase, according to Draghi. The risks to growth are considered balanced, with downward pressure from external geopolitical factors and developments on the monetary markets and upward pressure from economic sentiment indicators that could lead to further pleasant surprises.
The ECB has also unveiled new inflation forecasts, including the year 2020 for the first time. The increase in prices on an annual basis is expected to fluctuate as follows: 1.5% in 2017, 1.4% in 2018, 1.5% in 2019 and 1.7% in 2020.
Does the level of 1.7% chime with the ECB's mission to achieve a level of inflation close to but below 2%? More than the level itself, it is the robustness of the convergence towards the required level that matters, the former governor of the Bank of Italy stressed. “But domestic price pressures remain muted overall and have yet to show convincing signs of a sustained upward trend”, Draghi said, adding: “an ample degree of monetary stimulus therefore remains necessary” to support headline inflation developments over the medium term.
QE. The President of the ECB repeated the decision made at the end of October to extend the operation for the mass buyback of principally public securities ('quantitative easing' or QE) until September 2018 at the earliest, though reducing the annual buyback level from €60 to €30 billion (see EUROPE 11892). If the inflation trajectory is out of step with the ECB mission by next autumn, the ECB is prepared to amend the 'QE' operation in terms of scope or duration.
As regards QE, Draghi said that the governors had not discussed the end of this open-ended programme, whilst certain governors of the national central banks consider that this may be possible in autumn 2018. Nothing has been decided upon, said Draghi, who referred, in addition to inflation, to the question of salaries, which have not yet been sufficiently re-evaluated.
The head of the ECB furthermore declined to be drawn on what the European institution plans to do with the debt instruments in the South African company Steinhoff, which it acquired in the framework of QE, now that the company has been found to be involved in an accounting scandal.
Finally, given the favourable but fragile economic situation in the Eurozone, the ECB decided on Thursday to keep the principal interest rates unchanged (0.00% for principal refinancing operations, 0.25% for the marginal loan facility, -0.40% for the deposit facility) over a period to go beyond that of the QE operation.
As for the growing gap between the ECB's very low rates and those of the American FED, which are on the increase, Draghi said that this stems from the different economic situations in the two zones, with economic expansion in the US at a more advanced stage than that of the Eurozone. (Original version in French by Mathieu Bion)