Fra ABN Amro:
ECB View: Minutes pre-signal downward revision in ECB’s staff projections – The account of the ECB’s October Governing Council meeting showed that there was considerable discussion of downside risks to the economic outlook. In discussing the economic projections, members pointed out that ‘incoming information had generally been somewhat weaker than expected’ and ’a wide range of data releases and indicators suggested a downward revision to the short-term outlook’.
Also, it was noted that ‘a number of arguments pointed towards risks to the growth outlook tilting to the downside’. But most importantly, ‘it was recalled that the ECB’s September staff projections had incorporated a small acceleration in quarterly growth rates in 2019, compared with the profile for 2018, which could be revisited.’
Furthermore, reference was made to ‘some anecdotal evidence suggesting that the business decision of firms were being affected by widespread uncertainty related to trade and political developments, with some firms postponing investment as a result’.
Despite these statements, which we think clearly signal that the ECB’s confidence in its own relatively positive growth outlook had waned, the account mentions ‘there was broad agreement that at present, the risks to growth could still be considered to be balanced overall’.
Indeed, ‘members agreed that the December 2018 staff projections, which will include projections for 2021 for the first time, would provide an occasion for a more in-depth assessment’. As we have communicated before, we think that the ECB’s relatively positive communication is related to the fact that the central bank wants to end asset purchases in December and it does not want to give investors reasons to think it may not do so.
Indeed, the guidance on ending asset purchases is data dependent, so it probably did not want to give the impression that the economic outlook had deteriorated at the October Governing Council meeting.
Looking forward, we think the ECB will turn to other policy tools after December, in particular the forward guidance on interest rates and reinvestments. Indeed, we think that in the first half of next year, the ECB will change its forward guidance on interest rates to signal that policy rates will remain unchanged next year (we expect a first rate hike in March 2020).
In addition, we expect it to signal that reinvestments will continue well past the period of unchanged rates. We do not expect the ECB to end reinvestments until late in 2021. (Nick Kounis & Aline Schuiling)
