ECB Sounds Increasingly Dovish as the Economy Keeps Weakening

Posted Monday, August 5, 2019 by
Skerdian Meta • 2 min read

The Eurozone economy is in a tough spot after weakening for more than a year. The global economy is also pretty weak, so there won’t be any help from abroad. Today’s data showed further deterioration as final services ticked lower in the Eurozone while the Sentix investor confidence dipped further into negative territory this month. This is a terrible indication for businesses in the coming months.

The European Central Bank (ECB) has turned pretty dovish and they should start easing the monetary policy again soon, although we don’t know exactly what steps they will take. It is likely that they introduce another stimulus package apart from cutting interest rates further.

The ECB released the economic bulletin and ECB governing member Nowotny made a few comments a while ago and they all sounded dovish.

ECB Economic Bulletin

  • Global trade is likely to remain weak in the coming quarters
  • Global trade likely to pick up only gradually in the coming quarters
  • Will remain weaker than overall economic activity
  • US-China trade war has sapped confidence and held back investment
  • Downside risks to the outlook for trade have partially materialized in recent months
  • The threat of further escalation of trade tensions persists

ECB Member Nowotny

  • I doubt more monetary stimulus will be able to deliver significant boost the economy
  • Don’t think there is a need to restart QE
  • We have to learn how to live with lower growth and inflation rates

Nowotny is implying that the Eurozone needs a fiscal stimulus as well as a monetary one and he is not wrong about that. The ECB bulletin also seems pretty gloomy; they expect trade to pick up in the coming quarter, but if the trade war goes on and if central banks do nothing, then it will be difficult. The Euro should turn bearish, but it is continuing to grind higher against the USD.

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