An Irish think tank warns that Ireland’s households and firms are most at risk of a looming interest rate hike by the ECB compared to any other country in the EU.
An Irish think tank warns that Ireland’s households and firms are most at risk of a looming interest rate hike by the ECB compared to any other country in the EU.

ECB May Lift Growth Outlook

The fragile economic recovery in the eurozone region will likely gather pace with recent economic data suggesting a strong 2018

ECB May Lift Growth Outlook

The European Central Bank is likely to raise its growth forecasts when it meets Thursday, as the fragile economic recovery in the region slowly gathers pace. This will be President Mario Draghi's last press conference before the holiday season, but the Italian economist has given away most of his presents early this year.
At the last meeting, he revealed the big roadmap for the ECB's monetary policy until September 2018. This week, he'll likely speak on an upward revision of the ECB's growth outlook. But more details on how the ECB plans to unwind its quantitative easing program will likely be scarce, and won't be expected in full until June or July, CNBC reported.
"We expect Draghi to reconfirm the main messages from the October meeting," said Carsten Brzeski chief economist for Germany and Austria with ING Diba, in a research note. "With some upward revision for eurozone growth for this year and next, the ECB should join the growing choir of eurozone optimists," he added.
Draghi's main messages are:
a) Policy rates will remain at current levels "well past" the horizon of its current net asset purchases
b) QE could continue beyond September 2018 if a "sustained adjustment in the path of inflation consistent with its inflation aim" is not achieved and
c) The ECB could still do more QE if the macro outlook "becomes less favorable" or financial conditions "become inconsistent with further progress towards a sustained adjustment in the path of inflation".
There are no changes expected to the above working, as the somewhat dovish bias has still a majority in the ECB  Governing Council. Despite that, the majority of economists polled by Reuters expect the ECB to reduce its asset purchase program to zero by December 2018, which would allow the ECB to lift rates sometime in 2019.
This means that rate hikes will only come after the end of the program, reinvestments though—where the central bank reinvests the proceeds it gets from buying bonds—will continue.

Bumper Year Ahead
In the meantime, the fragile economic recovery in the region will likely gather pace with recent economic data suggesting a strong 2018. "No-one would be overly surprised if we would again slightly revise upwards our projections for growth," governing council member, Yves Mersch, said in an interview with CNBC last month.
He added that the inflation drop, projected for the end of this year and the beginning of next year, would be "less pronounced" as first feared. Meaning, the eurozone economy could well enjoy a bumper year while ECB's policy remains very loose and accommodative.
"We see risks to the ECB's cautiousness, not necessarily from higher inflation, but from getting the timing wrong in terms of boosting asset prices at a late stage of the economic cycle and depleting its ammunition," Societe Generale's ECB watcher Anatoli Annenkov said in a note.

Irish Households Most at Risk
Irish householders and firms are most at risk of a looming interest rate hike by the European Central Bank compared to any other country in the EU, a leading government think tank has warned.
The Economic and Social Research Institute warned that a so-called normalization of monetary policy in the eurozone—by unwinding policies designed to deal with the economic crisis—could have a greater impact on Ireland's economy than any other member.
The think tank said more households and firms will default if the ECB hikes interest rates—which is expected to happen in 2019.
At the launch of its latest economic commentary, the institute said house prices could continue to rise for up to seven years, while unemployment will dip below 5.5% by the end of next year, leading to increasing pressure for wage hikes.
At least six banks including Nomura International Plc and Barclays Plc predict that Draghi will raise interest rates as soon as next year. While those forecasts are outliers—most investors and economists only foresee a rate hike well into 2019—a key rationale is that faster-than-expected inflation will force the ECB’s hand.
Hoping to boost anemic inflation, the ECB under Draghi has bought more than €2 trillion ($2.35 tillion) of bonds in the past two years in the QE program. It is due to end next September, and could push up borrowing costs once it does.

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