Columbia Threadneedle Investments: Comment on tomorrow's ECB meeting
Columbia Threadneedle Investments: Comment on tomorrow's ECB meeting
The ECB will remain on the horns of a familiar, if tricky, dilemma when it meets on Thursday. Euro Area activity data have continued to disappoint expectations all year, dashing hopes that 2017’s impressive growth rates could be sustained. This may require the ECB to revise down its projections for 2019 GDP growth to rates much closer to trend, despite expected tailwinds from lower energy prices and looser fiscal policy.
The ECB will remain on the horns of a familiar, if tricky, dilemma when it meets on Thursday. Euro Area activity data have continued to disappoint expectations all year, dashing hopes that 2017’s impressive growth rates could be sustained. This may require the ECB to revise down its projections for 2019 GDP growth to rates much closer to trend, despite expected tailwinds from lower energy prices and looser fiscal policy.
But while growth has been lacklustre, the ECB’s inflation narrative probably remains tenable and the Governing Council’s confidence in the convergence of inflation towards inflation target may even be increasing. That’s because Euro Area wages are now rising at the fastest pace since the Financial Crisis and fears of deflation have receded meaningfully.
It’s highly likely that the Governing Council will confirm that net asset purchases under its Quantitative Easing programme will end on schedule this month and that reinvestments of maturing assets will continue with no set end date. It is possible that Draghi provides some adjustments to the forward guidance around the timing of the first rate hike, but our expectation is that the current guidance is sufficiently vague for him to avoid a serious change.