The european central Bank (ECB) has agreed a new financial effort of size, Thursday, June 4 : it has strengthened and extended its arsenal to support the economy, as the impact of the new coronavirus promises to be felt for several years. Forged in march and started with 750 billion euros until the end of the year to buy public and private bonds, the program PEPP has been inflated to € 600 billion, announced a spokesman. It has also been extended until ” at least the end of June 2021 “, a sign that the response to monetary shock health will take more time than initially expected.
The ECB has also indicated that it would reinvest at maturity for the securities participating in PEPP until “at least the end of 2022,” which allows him to drive the stock of assets in the long term, as it does already for 2015 for its program ” QE ” of asset purchases. This decision ” is significant “, since the institute will be able to use “longer” the flexibility offered by the PEPP, focusing, for example, its purchases on the most affected countries, decrypts Frederik Ducrozet, a strategist at Pictet Wealth Management. Finally, the institute has maintained its key interest rates at their historic low to stimulate the supply of credit in the euro area for households as well as business.
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A fall in GDP of between 8% and 12% in 2020
The main interest rate remains at zero, whereas banks will apply a levy of 0.50 % on a fraction of the deposits they entrust to the central bank instead of lending to their customers. To justify these decisions, from 14: 30 in front of the press, the president of the ECB, Christine Lagarde, had a new set of macroeconomic forecasts current until 2022, evaluation is crucial to the magnitude and duration of the crisis.
already, the French called for a decline in the gross domestic product of the euro area, including between 8 and 12 % this year, before a recovery in the contours uncertain. Additional difficulty : if containment measures to curb the sars coronavirus resulted in an economic shock ” very symmetric “, which has hit all the country around mid-march, the rebound that promises to be ” much more asymmetric “, observed Carsten Brzeski, of ING bank.
The risk of a “recession, more sustainable’
According to the virulence of the epidemic, the affected sectors and safety nets deployed to protect jobs, “many of the peripheral economies are at risk of a recession is more sustainable,” he adds. Inflation, however, decelerated to 0.1% in may and could post zero year-on-year, before rising timidly to 0.7 % by 2021, according to Capital Economics, very far from the target of “near 2 %” behind which the ECB short since 2013.
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As a Member of the euro zone debt exponentially, not to mention a possible european borrowing in the future, the ECB could discuss the “distribution key” redemptions of sovereign debt crisis, expected to reflect the share of each member State in its capital, believes Fritzi Köhler-Geib, head economist at KfW. Deviations from this rule have been observed in the context of the PEPP, but ” for the most part negligible and less important than expected for Italy “, a country hard hit by the health crisis, note Chiara Cremonesi, strategist at UniCredit.
However, open this site as a technical and policy entails a major risk : in a judgment sounding in early may, the German constitutional Court has called on the ECB to justify by August its purchases of debt, while making the “allocation keys” as a condition of their validity. Of course, it was expected that Christine Lagarde repeated that the ECB is not subject to the Court of justice of the european Union, which has dubbed its bond purchase program. But this threatens judicial could revive fears of a breakup of the euro zone, especially “if the economic gap is widening again” between member countries and that the ECB is constrained in its action, ” warned Carsten Brzeski.
An expected inflation to 0.3% in 2020
in addition, the european central Bank expects a severe recession caused by the sanitary crisis in the euro zone this year, followed by a rebound more progressive, while inflation will remain far from his objective until at least 2022. The region’s monetary undergoes ” a sudden drop in economic activity due to the pandemic of coronavirus and steps taken to contain it “, summarised the president of the institution, Christine Lagarde, at a press conference.
The ECB expects an 8.7% decline in the GDP of the euro area in 2020, before a rebound of 5.2% in 2021 and 3.3 % in 2022, but these projections come with uncertainty exceptional “, according to Christine Lagarde. For it, as the contraction that the recovery “will depend on the length and effectiveness” of the containment measures, policy stimulus and employment support, as well as the “lasting impact” of the pandemic of sars coronavirus on the application. These macroeconomic projections are those of the “base case” scenario of the ECB, whose economists have prepared two paths of ” alternatives “. The three sets of figures will be published in a separate press release Thursday.
However, the “balance of risks” is negative, said Christine Lagarde : in the eyes of the institute, therefore, it is more likely to switch to a scenario even more bleak, rather than being positively surprised. The ECB has also sharply lowered on Thursday its forecast of inflation in the euro zone for the years 2020, 2021 and 2022. Inflation is expected to be 0.3 % in 2020, 0.8% in 2021, and 1.3 % in 2022, compared to a 1.1 %, 1.4% and 1.6 % in its previous forecast in march. These scores deviate still more from the ECB’s objective of inflation “close to but below 2 %” in the euro area.
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