ECB sees nothing more than the fog of war with crisis ahead

The European Central Bank sees a lot of uncertainty about the short-term growth expectations for the euro area. This was clear from the minutes of the last meeting of the ECB on Thursday.

According to policy makers, economic development depends on how the coronavirus pandemic develops. In the minutes, the ECB pointed to the slow vaccination roll-out in the euro area compared to other parts of the world.

The question was how realistic it was to assume that the lockdown measures taken against the virus could be phased out at the earliest in the second quarter. Depending on how the pandemic develops, the economic weakness could persist well into the second quarter, according to the central bank. In its last interest rate decision in March, the ECB decided to accelerate the pace of its bond buyouts in response to rising inflation and rising bond rates and a possible tightening of financial conditions as a result.

The consideration was made that if the favourable financial conditions can be guaranteed without the need to use the full PEPP, the full amount does not need to be used.

Policy makers also considered a scenario that inflation might move towards 2 percent later in 2021. Although this is likely to be temporary, according to the ECB, businesses are seeing signs of inflation rising, for example in commodity prices and rising production costs. The development of producer prices will therefore be closely monitored.

With the interest rate decision in March, the ECB increased its inflation expectations for this year from 1% to 1.5%, although this can largely be explained by temporary factors.

The expected growth of 4% this year does not yet include the positive impact of the stimulus measures in the US, according to the ECB, as does the impact of the European support fund.