Mario Draghi is letting the numbers do the talking. After five weeks of silence, the European Central Bank president is leaving it largely to a raft of economic data to fine-tune policy expectations ahead of the Governing Council’s next meeting on Sept. 8.
Reports covering inflation to business confidence and unemployment in the coming days may signal whether more stimulus is needed to sustain the recovery and revive price growth amid potential fallout from Britain’s vote to leave the European Union, Bloomberg reported.
Momentum in the 19-nation eurozone has so far shown few signs of losing pace, and economists at both JPMorgan Chase & Co and Danske Bank A/S pushed back projections for further easing.
But executives in Germany, the region’s largest economy, are beginning to wake up to the Brexit shock, suggesting that more severe consequences may still be ahead.
“I don’t think there is anything in the data calendar that is so decisive that it will either change the market or the ECB or both,” said Peter Schaffrik, head of European rates strategy at Royal Bank of Canada. “Inflation is going to go up slightly but it’s not going to go up fast enough to make them think ‘we don’t need to do anything.”’
Side Effects
While his commitment to use all instruments to bring inflation closer to the ECB’s goal is undisputed, Executive Board member Benoit Coeure warned last Tuesday of the side effects of ever increasing stimulus.
The most awaited piece of data in the coming days is probably inflation. Consumer prices are barely rising despite €1.2 trillion ($1.3 trillion) of bond purchases and a negative deposit rate, and policy makers agreed at their July 20-21 meeting that no clear upward trend in inflation was yet visible.
Economists surveyed by Bloomberg predict the rate rose to 0.3% in August from 0.2% the previous month. That would be the highest since January but still far from the ECB’s goal of just below 2%.
“Draghi has said he wants to make things dependent on the numbers,” said Michael Schubert, an economist at Commerzbank in Frankfurt. As far as inflation is concerned, “every tenth of a percentage point can be a source of hope or despair,” he said.
In both France and Italy, growth ground to a halt in the quarter. Manufacturing in the region’s second-largest economy has shrunk for six months and tourism is suffering from a series of terrorist attacks. Meanwhile, Italian banks are struggling to dispose of non-performing loans, and a vote on political reform expected in November has the potential to topple Prime Minister Matteo Renzi’s government. Even in Spain, where growth rates have been among the strongest in the region as investment and job creation tick up, risks remain.
