abrdn: ECB may remain too optimistic about growth prospects

abrdn: ECB may remain too optimistic about growth prospects

8 december 2022

Rente Centrale bank ECB
ECB.jpg

Below is an outlook from Paul Diggle, Deputy Chief Economist at asset manager abrdn, on the ECB meeting next week. abrdn is keeping an eye on three things.

First, the size of the rate hike they will undoubtedly be doing: will it be a smaller 50 basis points, or another 75bps move? We are expecting a smaller 50bps increment, in common with many other central banks which have been slowing the pace of hikes as inflation peaks and economic prospects for next year sour.

Second, the updated economic forecasts the ECB produce. The 2023 and 2024 Eurozone GDP forecasts will probably come down and inflation forecasts move higher. Even then, the ECB may remain too optimistic on the growth outlook relative to our views.

Third and finally, the communication around quantitative tightening or 'QT'. The ECB wants to de-dramatise QT, which will likely start in 2023, by making it passive and very gradual. There may be limited market impact at first, given that QT is widely expected – but more stress in bond markets could emerge if QT coincides with other unforeseen shocks further down the road.

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