Eurozone is forecast to shrink the economic stimulus package at the end of the year

Analysts have high expectations that the European Central Bank will announce the contraction of the economic stimulus package in December, in the context of the Eurozone economy having improved.

Euro symbol in Frankfurt, Germany. Photo: AFP/VNA

The situation of the Covid-19 pandemic affects the decision

During the Jackson Hole Economic Symposium held last week in Wyoming, the US Federal Reserve (Fed) gave the green light on the possibility of starting to shrink the economic stimulus package by the end of this year, according to the Chairman. Fed Jerome Powell the US economy is at a time when it does not need as much policy support as before. However, the speed of shrinking the economic stimulus package through reducing asset purchases is still undecided by the Fed.

As for the Eurozone, experts predict a similar decision may be forthcoming. “I predict they (European Central Bank – ECB) could make that decision in December,” said Gilles Moëc, chief economist at AXA Investment Managers.

The European Central Bank will meet on September 9, but analysts believe it will wait a few more months before announcing decisions related to Covid-19.

Grandfather Gilles Moc said: “I think they want to give themselves some time and come up with new forecasts” before the Board of Directors makes a decision.

In addition to issuing new forecasts, the European Central Bank will also want to observe the Covid-19 pandemic situation in the coming months, said Chiara Zangarelli, European economist at Nomura.

When everything is fine, “even the dovish members” of the European Central Bank are unlikely to delay the decision to scale back the economic stimulus package after December, she said.

And chief economist at the European Central Bank, Philip Lane, noted in an interview last week that “September is a long way off” from the end of the country’s Covid-19 asset-buying program. this agency. From there, there is speculation that it may be several months before the European Central Bank comes to a decision to scale back its asset purchases.

Meanwhile, the Eurozone economy has had a strong recovery. The Eurozone recorded a strong growth of 2% in the second quarter of 2021, in the context of many member countries lifting Covid-19 prevention restrictions.

In addition, preliminary data released earlier this week showed that the Eurozone saw August inflation rise to the highest level in a decade to 3% as the region achieved high vaccination rates and eased restrictions. restrict epidemic prevention.

The European Central Bank forecasts the region’s consumer price index will soar this year, albeit due to temporary factors. Previously, the agency raised its main inflation target to 2% over the medium term. If inflation continues to climb higher, it will put more pressure on the European Central Bank to reactivate economic stimulus packages at a faster pace.

Anticipate long asset buying program

The European Central Bank launched a new asset purchase program (PEPP) following the outbreak of the pandemic in March 2020 to support the regional economy. Accordingly, the PEPP program will end in March 2022 with a total potential expenditure of EUR 1,850 billion (equivalent to USD 2.190 billion).

Program PEPP helping the European Central Bank have more flexibility in policy implementation, for example, it can buy Greek bonds that do not meet investment criteria under other programs.

“It’s not clear yet how severely PEPP asset purchases will shrink, but I think we’ll see signs that PEPP purchases will remain very high throughout the fourth quarter. 2021) before tapering off in the first quarter of 2022,” predicted Guillaume Menuet, a European economist at Citi Financial Group.

Gilles Moëc, chief economist at AXA Investment Managers, said the PEPP program will end in March “but after that there will be a wide-ranging discussion about what to do with the program.” APP asset purchases”.

The APP asset purchase program is still available The European Central Bank maintains with a current monthly buying rate of EUR 20 billion. The agency has been combining APP and PEPP asset purchase programs to maintain support for the 19-member economy.

Salomon Fiedler, economist at Berenberg Bank, told CNBC that the APP program will likely last until 2023 and then a rate hike could happen in the fourth quarter of that year.

Meanwhile, Ms. Chiara Zangarelli, European economist at Nomura, said that in the meantime, the APP program will likely be expanded once the PEPP program ends. She hopes these details will be revealed at the meeting of the European Central Bank in December.

However, Philip Lane, chief economist at the European Central Bank, said last week that “there are no conditions to end the APP”.

“Whenever the PEPP program ends, that’s not the end of the ECB’s quantitative easing (QE) role. This is why we don’t need time to prepare to speculate. think about it. Of course, we can’t leave it too late. But six months is a pretty long time. In the fall, we’re going to have to deal with a lot of issues related to policy in 2022.” , Philip Lane told Reuters.

Meanwhile, Mr. Gilles Moëc, chief economist at AXA Investment Managers, said that what could cause the European Central Bank to “derail” its decision to narrow its asset-buying program in January. December, can only be Covid-19.

According to AXA experts, the Eurozone economy is “benefiting” thanks to the high vaccination rate and the region’s overall caution to avoid lifting all epidemic prevention measures. Up to now, 70% of the population of the European Union (EU) has been fully vaccinated against Covid-19 vaccine.

So, even if the pandemic worsens in the coming months, Mr. Gilles Moëc still believes that “the probability of maintaining the current PEPP buying threshold is very high”.