Europe’s Central Bankers See Hints of Stronger Economic Bounce
(Bloomberg) -- Some European monetary policy makers are sounding increasingly optimistic that the recovery from the worst economic crisis in living memory will be stronger than expected.
Top European Central Bank officials have suggested in recent days that the euro-area recession sparked by the coronavirus pandemic might not be as deep as previously feared, with President Christine Lagarde signaling that she’s in no rush to ramp up monetary stimulus again.
Bank of England Chief Economist Andy Haldane, the only policy maker to vote against the U.K. central bank’s decision to increase bond purchases last month, says the rebound in Britain has come sooner than anticipated -- though bond investors are less sanguine.
While officials continue to warn that risks remain -- such as a renewed outbreak in the disease and the after-effects of the supply and demand shocks -- the comments show confidence that lockdowns and massive financial support by central banks and governments are working.
In contrast, the U.S., has seen a resurgence in coronavirus cases in recent weeks and Federal Reserve Bank of Atlanta President Raphael Bostic said in an interview published Tuesday that economic activity in parts of the country is showing signs of leveling off.
Central banks on both sides of the Atlantic have rolled out extraordinary measures such as lending programs as well as ramping up their bond-buying programs. Yet Europe also turned on a larger scale to furlough schemes to prevent massive layoffs, and kept lockdowns in place until virus cases were clearly headed lower.
Signs of improving confidence in the euro zone suggest that “the recession could turn out somewhat milder than expected,” ECB Executive Board member Isabel Schnabel told a Dutch newspaper on Tuesday. Vice President Luis de Guindos echoed that sentiment in a webinar organized by Goldman Sachs on Wednesday.
“The outlook is a little bit brighter than it was only two months ago,” he said, adding that the most recent data point to “having perhaps a little bit more optimism with respect to the drop in the second quarter and the recovery in the third and the fourth.”
The ECB, which meets to set policy next week for the first time since it almost doubled the size of its pandemic bond-buying program, now has “quite a bit of time” to assess the economic data, Lagarde said in an interview published Wednesday.
Such optimism flies in the face of European Commission forecasts published this week that downgraded the outlook for the currency bloc, warning that the risks remain “exceptionally high and mainly to the downside.”
Still, IHS Markit’s latest report on private sector activity pointed to the euro-area economy growing again in the third quarter, and the pace of contraction slowing to just 0.2% in June. German industrial production is rebounding after sustaining a record hit in April.
What comes after the initial bounce and whether it’s sustainable is the bigger concern for policy makers. Haldane, the BOE’s chief economist, said on Tuesday that he’s seeing the greatest uncertainty in his three-decade career.
Chancellor of the Exchequer Rishi Sunak tried to counter that on Wednesday with a raft of measures including bonuses for companies that bring furloughed workers back, tax cuts for the hospitality sector and for homebuyers, and discounts for eating out.
“The direction of travel has been upward, and that upward path has come sooner and has been faster than we at the BOE or any other mainstream forecaster were expecting,” Haldane said. “There is a huge amount of uncertainty about what paths the economy might take from here.”
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