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4 Minute Read by (Reuters) – BENGALURU (Reuters) – According to a Reuters poll, the European Central Bank will begin reducing its pandemic-related asset purchases after its September meeting and will stop buying them by the end of March. The main economic risk, according to the poll, is new COVID-19 variations. PHOTO FROM THE FILE: The European Central Bank’s (R,ECB) headquarters are photographed in Frankfurt, Germany, on January 22, 2021. Kai Pfaffenbach/Kai Pfaffenbach/Kai Pfaffenbach/Kai Pfa ECB President Christine Lagarde said on Monday that the bank would update its policy guidelines at its July 22 meeting, after outlining a new strategy last week that allows the central bank to tolerate inflation higher than its new symmetric objective of 2%. While those decisions came amid slightly more upbeat GDP and inflation expectations for this year and next, high unemployment rates in most euro zone countries highlight the need for caution. In a follow-up question in the July 5-12 poll, just over 70% of economists, or 36 of 51, indicated the ECB will begin reducing its Pandemic Emergency Purchase Program (PEPP) after the September meeting, up from almost 63 percent last month. According to a consensus of 39 experts, the entire 1.85 trillion euro PEPP envelope will be used up, with the lowest estimate being 1.5 trillion euros. “Based on the current monthly rate of purchases, we expect only a gradual decline in this pace after September, and the envelope will most likely be used in full until March,” said Salomon Fiedler, Berenberg’s European economist. “Furthermore, by September, Europe’s vaccination campaign should be nearly complete… but if new varieties are able to escape present vaccine protection, fresh social distance will put a damper on the economy once more.” Reuters poll graphic on inflation, unemployment, and economic growth prospects in the euro zone: The euro zone economy is expected to grow by 4.5 percent this year and 4.3 percent next year, according to a poll of more than 100 economists, up from 4.2 percent last month. This is in contrast to the European Commission’s more upbeat forecasts of 4.8 percent growth this year and 4.5 percent next year, which are higher than the 4.3 percent and 4.4 percent expansion it predicted in May. While this year’s survey consensus was the highest since January, growth estimates for 2022 were the highest since polling for that period began in July 2020. Following a likely 1.4 percent expansion in the previous quarter, the bloc’s economy was expected to increase 2.4 percent and 1.3 percent in the third and fourth quarters, respectively, up from 2.3 percent and 1.2 percent forecasted in June. Annual growth predictions for Germany, France, and Italy were also raised to 3.5 percent, 5.7 percent, and 4.8 percent this year, respectively, from 3.2 percent, 5.4 percent, and 4.1 percent in April. While inflation in the eurozone was likely to climb and average above target in the second half of 2021, it was predicted to average 1.9 percent this year and 1.4 percent the next year. The ECB is anticipated to maintain its deposit rate of -0.50% and refinancing rate of zero until the end of next year. The following is a chart from a Reuters poll on the euro zone’s economic outlook: New COVID-19 versions were the largest risk to the euro zone economy this year, according to nearly 90% of economists (53 of 60) who responded to another question. The top risk, according to the remaining seven respondents, is a decreased rate of economic growth. None of the participants identified increased inflation or ECB tapering as a threat. “COVID-19 is the largest unknown, and it could have the most catastrophic consequences. Unless the coronavirus resurfaces, it appears doubtful that economic growth would drop significantly in the second half of the year “Bas van Geffen, a Rabobank quantitative analyst in macro strategy, agreed. “Meanwhile, while it is true that inflation will be strong this year, we believe this will be a one-time event. And because the ECB is looking at it while also keeping a tight eye on financial conditions, I don’t believe they will move at such a rapid pace that a reduction in ECB easing poses a serious concern.” (See the Reuters global long-term economic outlook polls bundle for more articles.) Swathi Nair and Shrutee Sarkar contributed reporting; Indradip Ghosh, Prerana Bhat, and Susobhan Sarkar conducted polling; and Rahul Karunakar and Catherine Evans edited the piece./nRead More

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