The ECB’s latest stimulus package is expected to have little impact on the eurozone economy

BENGALURU, Jan.18 (Reuters) – The European Central Bank’s new package will have little effect on the coronavirus-ravaged eurozone economy, a Reuters poll of economists predicted, which almost halved their growth prospects in the first quarter.

Despite the ECB’s decision to top up its emergency pandemic purchases from half a trillion euros to 1.85 trillion euros and extend the program for nine months, the bloc’s economic outlook remains bleak .

Reuters consensus poll of more than 80 economists predicts that the eurozone economy shrank 2.5% in the last quarter after growing 12.5% ​​in the third quarter and is expected to grow 0.6% this quarter , nearly half of the 1.1% forecast a month ago.

It is then expected to rise by 2.3%, 1.9% and 1.0% in the second, third and fourth quarters, largely unchanged from last month’s forecast gathered just before the ECB introduced more stimulus measures. .

More than 70% of economists, or 28 of 39 who answered a supplemental question, said the ECB’s latest policy measures would have little impact on the eurozone economy. The others said it would give a significant boost.

“Interest rates are already so low and the policy is ultra flexible, so for now, monetary policy cannot impact investment or consumer demand. So we don’t think that the ECB can strongly influence the economy right now, “said Christoph Weil, senior economist. at Commerzbank.

“We expect a few bitter months. The lockdowns will slow the economy and we expect GDP to decline in the last quarter of 2020 and the first quarter of this year. So technically a recession.”

Among respondents to the January 11-15 survey, more than 25% expected the euro area – where growth hit an all-time low in the first half of 2020 – to once again enter a technical recession, defined like two consecutive quarters of contraction.

On an annualized basis, the economy is expected to have shrunk 7.3% in 2020, roughly in line with the latest survey, but for this year the median has been lowered to 4.5% from 5.0% the last month. For 2022, the growth forecast has been revised upwards to 3.9% from 3.5%.

“The start of the year continues to bring bad news for Europe as the health situation deteriorates. With lockdowns already underway in several countries, the short-term risks to the economic outlook are clearly on the downside, especially as the vaccination rollout is underway. still slow, â€said Angel Talavera, Head of European Economics at Oxford Economics.

“The new, more transmissible variants of the virus mean that further deterioration could occur very quickly.”

More than 70% of those polled, or 30 of 42, who answered a separate supplemental question said the economy would return to pre-crisis levels within two years, including six who said within a year. year. The others said it would be over two years.

The two largest eurozone economies are expected to experience much slower growth in 2021 compared to October expectations. Germany is expected to grow 3.7% from 4.6%, and the outlook for France has been lowered to 5.9% from 6.9%.

Eurozone inflation, which has remained in negative territory for five consecutive months last year, is expected to remain below the ECB’s target of just under 2%, averaging 0.9% in 2021 and 1.3% in 2022.

A slim majority, over 52% of economists, or 21 out of 40 who answered a separate question, said a significant acceleration in inflation was likely. Seventeen said it would stay roughly the same as in 2020 and two said deflation was more likely.

“If we go by history, any too high inflation expectations can be dashed. But we have a very favorable fiscal policy and a number of structural factors that could support higher inflation a little later.” , said Florian Hense, responsible for Europe. economist at Berenberg.

(For other articles from Reuters Global Economic Survey:)

Reporting by Richa Rebello; Poll by Sujith Pai and Swathi Nair; edited by Jonathan Cable and Larry King

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