Signs of Wavering Eurozone Economy Are Unlikely to Faze ECB
Posted April 26, 2018 1:44 a.m. EDT
FRANKFURT, Germany — The eurozone economy has been a puzzle lately. Some indicators are pointing up, some down and some sideways. It’s hard to know whether growth is losing momentum or just pausing for breath.
Some clarity could come Thursday from the eurozone’s most influential economist: Mario Draghi, the president of the European Central Bank. Draghi’s view of the economy — and what that means for monetary policy — will be one of the main themes when he holds a news conference after a meeting of the bank’s Governing Council.
If Draghi sounds worried that growth is sputtering, it might mean that the bank will take longer than expected to wean the eurozone off central bank stimulus. If he seems unconcerned, it probably means the Governing Council, the bank’s policy-setting committee, will end its de facto money-printing program after September, as expected. Draghi may also remain enigmatic, preferring to wait for more data before he offers his opinion on the state of the eurozone economy.
Indeed, among professional economists, there is no consensus about what is going on in the 19-nation eurozone. Every day seems to bring a new indicator that conflicts with one the day before.
On Monday, for example, a survey of eurozone purchasing managers by the research firm IHS Markit indicated that expectations for growth were stabilizing after several months of decline. That was good news.
Then, on Tuesday, bad news. The German Ifo Institute’s survey — a well-tested indicator of how managers are feeling in the eurozone’s largest economy — took a dive. Similar surveys in France and Italy also dipped, probably because business managers are worried that the region will be drawn into a trade war with the United States.
But wait: Then came a survey by the European Central Bank showing that commercial banks in the eurozone are becoming more willing to lend. That information bolstered economists who believe that recent signs of slowing growth reflect temporary factors, like an especially pernicious flu season that kept many workers home and hurt business.
Amid so much uncertainty, Draghi’s view of growth is critical. He has a large staff of economists and access to data not available to private-sector economists, not to mention a doctorate in economics from the Massachusetts Institute of Technology.
And unlike the view of your average economist, Draghi’s is partly self-fulfilling. If he displays confidence, banks will be more eager to lend, businesses may be more willing to invest in expansion and to hire more people, and, lo, it will be so.
For financial markets, the key question is whether recent economic data will alter the European Central Bank’s schedule for ending the measures it used to keep the eurozone together during an existential debt crisis. Chiefly, the bank bought hundreds of billions of euros in government and corporate bonds as a way of pumping money into the economy.
In recent months, the Governing Council has been making subtle changes in the statements it issues after monetary policy meetings as a way of preparing investors for an end to the bond buying, known as quantitative easing.
September is expected to be the last month of the purchases, although the bank will continue to reinvest money it makes from interest payments and other profits. The aim is to gently bring monetary policy back to normal. Late next year, or maybe not even until 2020, the European Central Bank will then probably begin raising its benchmark interest rates, currently at a historic low of zero, for the first time since 2011.
Any indication by the Governing Council that it is revising its timetable would be big news. But the council takes the long view and has shown in recent months that it won’t be thrown off course by a few unsettling economic indicators.
One thing is virtually certain: The bank is not likely to signal any acceleration of its schedule for ending the stimulus.
“It would take a bold central bank to tighten monetary conditions when the economy is contracting or even just slowing,” Carl Weinberg, chief international economist for High Frequency Economics in New York, said in a note to clients.