BENGALURU (Reuters) – The European Central Bank, which just last week said it was ramping up its already-whirring money-printing presses, will announce yet more stimulus measures in response to the pandemic-driven recession, a Reuters poll of economists predicted.
The ECB on June 4 expanded its pandemic-related bond purchases by 600 billion euros to a total of 1.35 trillion, extending them to June 2021. COVID-19 has killed about 420,000 people globally, and coronavirus infections are still spreading.
In the latest Reuters poll, taken June 8-11, after most euro zone economies started to re-open from around two months of lockdown, over three-quarters of economists who answered an additional question, 31 of 41, said the ECB was not yet done with new policy announcements.
Of those 31 who expect the ECB to act again, 23 said the central bank would announce additional asset purchases by the end of 2020, including nine who expected such an announcement in July-September.
Others said the central bank could widen its purchases to include corporate bonds that lost investment-grade ratings during the pandemic, adjust its tiered deposit system, or provide cheap loans to commercial banks at even lower rates.
The results follow a massive downgrade to the ECB’s staff forecasts and show economists who watch the central bank to be no more optimistic, expecting a slightly stronger recovery from an even deeper recession than they were predicting weeks ago.
“We think the Pandemic Emergency Purchase Programme will be with us for a very long time to come and this will be crucial as governments issue more (debt) to support their economies, so the ECB will have to buy more,” said Marco Valli, head of macro research at UniCredit.
“We expect a fairly strong rebound in the second half of the year, but the first half will be very bad. Most people are probably underestimating the size of the contraction in the second quarter,” Valli added, whose forecasts were the lowest in the poll at -21.2%.
The latest poll showed gross domestic product shrinking 12.5% this quarter compared with the first three months of the year, worse than the 11.3% contraction forecast in last month’s poll.
It was then expected to expand 7.9% and 3.1% in the third quarter and fourth quarter, respectively, up from 7.2% and 2.8% in the May poll.
The wider Reuters poll of around 90 economists predicted the economy would shrink 8.1% in 2020, deeper than the 7.5% contraction predicted just a month ago, followed by a 5.4% expansion in 2021, up from 5.0% previously.
(Graphic – Reuters Poll: Euro zone economic outlook: https://fingfx.thomsonreuters.com/gfx/polling/jbyprlwrepe/Reuters%20poll%20-%20Euro%20zone%20worst%20case-%20June%202020.PNG)
The consensus view for this year is not as pessimistic as the ECB staff’s latest forecast of -8.7%. It foresees a 5.2% expansion in 2021, roughly in line with the Reuters poll.
“We still expect the GDP level at the end of next year to be below pre-crisis levels. So despite the rebound, there will still be a lot of room to catch up,” said UniCredit’s Valli.
Consumer price inflation was forecast to average 0.4% this year and 1.1% next, above the ECB staff projections of 0.3% and 0.8%, respectively.
Still, 34 of 38 respondents to an additional question said the ECB’s response to the crisis had been “about right”.
A slim majority, 20 of 38, said the European Commission’s proposed joint fiscal response, in the form of a 750 billion- euro recovery fund, was “not enough.”
(Reporting by Richa Rebello; polling by Sujith Pai and Manjul Paul; editing by Ross Finley, Larry King)