ECB Meeting to Reveal the Bank’s Outlook on European Economy

22 Apr 2021 · 3rd Party Analysis

ECB Meeting to Reveal the Bank’s Outlook on European Economy


In Summary

  • ECB meeting today to provide insight on the state of the European economy, the outlook for recovery
  • ECB chief Christine Lagarde pressured to announce next steps to support the euro area

The European Central Bank (ECB) is set to meet later today. Policymakers at the ECB will have to decide whether their efforts to support the European economy are enough. Recently, the third wave of rising coronavirus infections has threatened the economic rebound as EU members are held back by renewed lockdowns. In contrast, the US and the UK are in the early stages of economic reopening, and growth is expected to rebound.

At its last meeting, the ECB decided to conduct bond purchases “at a significantly higher pace” under its €1.85tn emergency pandemic program (PEPP). The ECB’s current monetary policy is aimed to ensure “favorable financing conditions” to support the economic recovery and mitigate the downside risks of the pandemic, sweeping across the old continent.

Since the last ECB meeting, the accelerated bond purchase program has been buying €19bn worth of bonds per week, €4bn higher than the previous weekly average of €15bn earlier in the year. Some analysts expect the central bank to step up its purchases further in the second quarter.

European Central Bank President Christine Lagarde, later today, is expected to reiterate the bank’s decision to continue purchasing bonds at an accelerated pace through June to provide strong support for the economy and maintain the easy-money policy that allows favorable financing conditions.

Challenges Are Still Affecting Economic Output

Ms. Lagarde is facing imminent challenges due to the high coronavirus infections in the bloc, which suggest continued lockdowns that could dampen economic output. On this issue, the head of the ECB will have to reveal how much longer the European market will need monetary support as the euro area economy is trailing well behind the US economy.

The Governing Council, ECB’s main decision-making body, is not expected to raise interest rates as growth and inflation projections will not be updated until June. The ECB’s current monetary policy is expected to be maintained under the PEPP to keep favorable borrowing costs for businesses, households, and governments.

Meanwhile, across Europe, the Italian Prime Minister Mario Draghi is set to unveil a €221bn recovery package aimed to bolster the Italian economy. After the coronavirus crisis hit, Italy entered into its worst recession since the second world war. Mr. Draghi’s task will include the restructuring of the Italian economy through investments in railroads, green energy, and digitalizing the public administration. The plan will also include spending on education, health, and infrastructure. Mario Drahi will also focus on the legal system and local administration reforms. Italy is expected to be the largest recipient of the EU’s pandemic recovery fund.

Mr. Draghi, dubbed by some Super Mario for his commitment to saving the euro when he was in charge of the ECB, is expected to present the plan early next week. The plan will need to go through the Italian parliament and then be sent to the European Commission for approval.

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