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Last month’s ECB Governing Council meeting centered around the question whether the recent weakness in some economic indicators (notably surveys) signaled the start of a further decline in future growth or simply a normalization to still decent growth levels, points out the research team at Rabobank.

Key Quotes

“In the press conference, the ECB president also expressed some concerns that an escalation in the trade war could have a “profound and rapid” effect on confidence, which in turn could affect the growth outlook.”

“We expect these concerns to be reflected in the Monetary Policy Accounts of that meeting, released this afternoon (at  13:30CET). Particularly the Governing Council’s assessment of the reasons behind the recent slowdown are likely to be scrutinized by market participants. Is the growth slowdown merely technical (i.e. following unusually strong growth around the turn of the year and temporary factors such as weather conditions and the timing of holidays exacerbating the slowdown) or are there also signs of a (more worrying) softening in demand, which could endanger the achievement of the ECB’s inflation objective.”

“Furthermore, given that we are only four months away from September, the last month for which the ECB has officially committed itself to keep buying assets to the tune of EUR 30bn/month, there is also some pressure building on the Council to become more vocal about its next steps and to tweak its forward guidance (which still links achieving its inflation objective to the asset purchase program).”

“But our impression at the time was that the Governing Council was trying to delay this discussion until there would be more clarity about the extent/cause of the recent slowdown in growth, hoping that things would have fallen into place by June. That hope may have been further dented by the recent string of data, rising oil prices and mounting political uncertainty in Italy. As such it will be interesting to see whether the Monetary Policy Accounts give any hints on where the ECB’s sees wiggle room and/or flexibility, both in the timing of future communication and in the use of its policy instruments. It is our view that any uncertainty is more likely to be expressed in the timing of rate hikes rather than QE. But that would require the ECB to become more explicit about what it means with “well past”.”