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ECB will stick to its plans – Nordea Markets

Tuuli Koivu, research analyst at Nordea Markets, suggests that in the ECB’s is likely to revise downwards its growth outlook and inflation projections in its forthcoming release of macroeconomic projections in December.

Key Quotes

“It is certain that. The data surprises since the September meeting have been negative and even more importantly, the Euro-area outlook has weakened due to the increased uncertainty in the global and political environment.”

“However, we do not expect the ECB to give up on its firm belief that the higher wage increases will finally push up consumer prices in the Euro area. One part of the reasoning is that although the November numbers were weaker than expected, most of the downside surprise came from the German package holidays and the ECB is likely to look through that type of data points. Thus, we expect the ECB core inflation profile to continue to be rising in the coming years.”

“This implies that the ECB can stick to its plans to stop the net asset purchases at the end of this year. However, the continuous negative surprises have clearly increased risks that the rate hikes are further delayed. Our expectation still is that the first rate hike will come in December 2019 but that forecast assumes that the political challenges related mainly to Italy, Brexit and trade war do not worsen.”

 

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