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ECB bond buying in final act as growth to bounce back - Reuters poll

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ECB bond buying in final act as growth to bounce back - Reuters poll

ECB bond buying in final act as growth to bounce back - Reuters poll
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KAI PFAFFENBACH(Reuters)
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By Mumal Rathore and Shrutee Sarkar

BENGALURU (Reuters) - Euro zone GDP growth will hit a faster albeit still modest rate this quarter, allowing the European Central Bank to end its stimulus programme next month as planned, despite economic and political concerns, a Reuters poll found.

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The Nov 8-13 poll of nearly 90 economists predicted economic growth of 0.4 percent this quarter, double the unexpectedly weak 0.2 percent - the slowest pace in the bloc more than four years - of the third.

That is despite a trade war between the U.S. and China that shows no signs of letting up, and political turmoil over Brexit and Italy's budget.

"Right now, it's more the case of a loss of momentum than the start of a downturn. And why is that? Because we have a couple of one-off factors – really high oil prices denting consumer spending and the political situation in Italy," said Carsten Brzeski, chief economist at ING, describing why the third quarter was so disappointing.

"We also have the diesel emission norm issue, especially hitting German cars... Trade tensions are a sentiment issue rather than a hard data issue because euro zone trade is hardly hit by tariffs."

Data developments clearly suggest that growth momentum in the currency bloc is well past its peak, fuelling speculation that some ECB policymakers may be feeling uncomfortable about ending the asset purchase programme, particularly given that inflation has not taken off.

For a second month in a row, all economists in Reuters polls unanimously said the central bank would not extend the 2.6 trillion euro ($2.9 trillion) purchase programme into next year.

The intention to end it is as much technical as practical, as the central bank already owns a huge chunk of euro zone government bonds and, under current rules of ownership, supply is drying up.

"Bond scarcity, limited effectiveness of further net purchases and blurred communication should prevent the ECB from extending its QE, whatever happens," said Louis Harreau, euro zone economist at CA-CIB.

Average annual inflation is expected to be below the ECB's 2 percent target ceiling until 2021 at the earliest, suggesting weak price pressures will not shift the central bank at this stage.

STEADY GROWTH TO 2020?

The ECB was forecast to hike its deposit rate to -0.25 percent in the third quarter of next year from -0.4 percent currently and the refinancing rate to 0.10 percent from zero in the last quarter of 2019.

Those predictions were unchanged from last month.

Asked about the risk the ECB does not hike its deposit rate next year, over 80 percent of respondents said this was low. But only just over half said the same applied to its refinancing rate.

"The data haven't been weak enough for them (the ECB) to consider not hiking next year. But again, if we have further weakness in the coming months it will be very difficult for them," said Elwin de Groot, head of macro strategy at Rabobank.

"Already the story is getting more difficult, as they are winding down the net asset purchases because of technical reasons in a way and not because they have achieved their goals."

GRAPHIC - Reuters Poll: ECB monetary policy risks: https://tmsnrt.rs/2Po2nPC

While private surveys have pointed to easing business activity and suggest the slowdown has further to run, the latest Reuters poll predicted the euro zone economy will pick up and grow a modest but steady 0.4 percent pace from now until summer 2020.

Even the two economists who correctly predicted last quarter's slowdown in a Reuters poll, as well as the most accurate forecaster of 2017, have pencilled in a growth pick-up this quarter and a steady outlook thereafter.

"The upswing will continue but of course at a slower pace... and that means this is in line with its potential output growth," said Christoph Weil, senior economist at Commerzbank.

"We expect a slight rebound to 0.4 percent, but, of course underlying trends have also come down."

(For other stories from the Reuters global long-term economic outlook polls package see)

($1 = 0.8872 euros)

(Polling by Tushar Goenka, Nagamani Lingappa and Manjul Paul; Editing by Ross Finley and John Stonestreet)

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