The ECB dares to ask if the stimulation of the crisis can be reduced: Eco Week

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The European Central Bank will decide this week whether it should dare to cut emergency stimulus measures as the pandemic continues to threaten the eurozone economy.

The threat posed by the delta variant of the coronavirus could further embolden policymakers on Thursday to maintain the “significantly higher” pace of bond purchases they adopted earlier this year. But advanced vaccination rates, a robust rebound and inflation that is already at its highest in a decade are all reasons to consider a downward shift in gears.

So far, the ECB has insisted that any surge in consumer prices is meant to be temporary, allowing officials led by President Christine Lagarde to continue to fuel the crisis. This contrasts with its global counterparts such as the Federal Reserve, where policymakers may consider cutting asset purchases in November or December, after Friday’s disappointing jobs report made such action unlikely. this month.

With inflation now at 3% in the euro area, ECB officials diverge further on the outlook for consumer prices. Greece’s central bank chief Yannis Stournaras suggested to Bloomberg last week that officials should not overreact, advising “caution”.

But in a preview of the arguments to come, his Dutch colleague Klaas Knot said that the goal of the ECB’s crisis bond buying program, to limit the damage to inflation inflicted by the coronavirus, is almost achieved. . He favors a more restrictive approach to the stimulus after the planned end of the measure in March.

Read more: Global gas price spike threatens to hurt economic recovery

Such remarks suggest that regardless of what officials decide to buy bonds for in the coming months, this week’s decision is just the first of several likely skirmishes over the future of monetary policy in the United States. BCE.

What Bloomberg Economics Says:

“The easiest option for the ECB would be to continue buying bonds through PEPP at a ‘significantly higher rate’ until the end of the year. The central bank could start to shrink in January. “

–David Powell and Maeva Cousin. For a full analysis, click here

Elsewhere, at least eight other central banks around the world are expected to make monetary decisions, including Australia and Canada. While most are expected to keep their stance unchanged, Russia and Ukraine could raise interest rates.

Click here to find out what happened over the past week and here’s our recap of what’s happening in the global economy.

Europe, Middle East, Africa

The ECB move may be the policy highlight of the week in the region, but Eurozone data will also give investors plenty to mull over.

Factory orders and industrial production from Germany, Europe’s largest economy, along with manufacturing statistics from France, Italy and Spain, will all show the strength of activity factories at the start of the third quarter of July, before bottlenecks in global supply began to be felt.

The same could be said for the UK, where industrial production will be released along with gross domestic product data that will show whether the economy has suffered a sixth consecutive month of expansion in its rebound from the pandemic as the summer was setting in.

Elsewhere in Europe, Riksbank Governor Stefan Ingves will deliver a speech on challenges facing the Swedish economy, while Norway and Denmark both release inflation data.

The Central Bank of Russia, which made its biggest hike since the 2014 ruble crisis in July, will reveal on Friday whether it wants to add to the move after Governor Elvira Nabiullina said it was “premature” to suggest the end of tightening. Officials are wary of rising inflation expectations, but also relaxed forward guidance in their latest statement.

In neighboring Ukraine, the central bank is expected to raise its benchmark index by half a point to 8.5%. On the other hand, the Polish and Serbian authorities could choose to keep their rates unchanged this week despite a resumption of inflation in these two countries.

South Africa is releasing GDP data for the second quarter on Tuesday, when the statistical agency will abandon the focus on annualized growth and use 2015 as a new base year.

To learn more, read the full upcoming week of Bloomberg Economics for the EMEA region.

Canada and United States

The Bank of Canada is expected to make a stand-pat political decision on Wednesday, wary of splashing out in the middle of an election campaign with a vote slated for September 20.

A bad run of economic numbers may cause policymakers to downgrade the country’s growth prospects and hint at a slower stimulus slowdown in the future. But less optimistic forecasts would likely become a political issue just as Canadians prepare to go to the polls.

In the United States, the economic data timeline is light during a shortened holiday week of trading, with numbers on job vacancies and producer prices topping the list.

Federal Reserve policymakers will also be part of the speaker circuit, including New York Fed Chairman John Williams, Dallas Fed Chairman Robert Kaplan, and San Francisco Fed Chairman Mary Daly. .

For more information, read the full upcoming week of Bloomberg Economics for the United States.

Asia

Reserve Bank of Australia Governor Philip Lowe has another opportunity to postpone his bond reduction plans when the central bank meets on Tuesday as Down Under lockdowns are expected to spread further. Growth data from last week showing stronger than expected momentum in the economy as the delta hits may reassure Lowe enough to stick with his phasing out of the stimulus.

Apart from Australia, Malaysia’s central bank is the only other to render a decision in the region on Thursday.

Japan will likely revise its GDP figures after stronger data on capital spending showed companies are still looking beyond the pandemic despite a state of emergency that is expected to be extended again this week. The household spending figures for July will shed some light on how worries about record virus cases in Japan are affecting consumption.

China releases trade and inflation data for August – it will be watched closely after recent indicators show the recovery is faltering.

To learn more, read the full upcoming week for Asia from Bloomberg Economics.

Latin America

On Tuesday, August data could show a further shrinkage in Chile’s monthly trade balance as the delta variant saps foreign demand and a white-hot domestic economy fuels import growth. Year over year, the trade balance and copper exports hit record highs in July.

Just over a year after the region’s growth and inflation fell due to the demand shock from the pandemic, economies are experiencing a series of recoveries. Consumer prices, on the other hand, have been consistently too high for policy makers. Four of the five central banks targeting inflation are now raising rates and the only resistance, Colombia, may well join on September 30.

By close of business Thursday, all five will have published August readings, only the gap between inflation and Mexico’s target is expected to narrow.

Peru’s central bank meets an inflation rate on Thursday at its highest level in 12 years and more. After raising the policy rate to a record high 0.25% by a quarter point last month, many analysts are eyeing further tightening that still provides some stimulus amid the headwinds of the pandemic and the political uncertainty.

For more information, read the full upcoming week of Bloomberg Economics for Latin America.

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