The European Central Bank will begin to tap the purchase of assets related to pandemic after the September meeting and stop buying it at the end of March, according to Reuters polls that show the top economic risk is the new Covid-19 variant.
After announcing a new strategy last week that allowed the central bank to tolerate higher inflation than the simetrical 2% new target, ECB President Christine Lagarde said on Monday the Bank would change its policy guidance at its policy meeting at its meeting on July 22.
While the announcement came with a background of growth and inflation estimates that were slightly more optimistic for this year and subsequently, the high level of unemployment in most euro zone countries underlined the need for caution.
More than 70% of economists, or 36 out of 51, which responded to additional questions in the July 1-12 poll said the ECB would start tapering the emergency purchase program Pandemi (PEPP) after the September meeting, rose from almost 63% of the month.
All 1.85 trillion Euro PEPP envelopes will be used, according to the consensus view of 39 economists, with the lowest expectations displayed at 1.5 trillion euros.
“Judging from the current monthly purchase rate, our assumption is only a gradual reduction of this speed after September, and in the remaining time until March, the envelope is likely to be used fully,” said Salomon Fiedler, European economist in Berenberg.
“Furthermore, in September, the vaccination campaign in Europe must always be complete … but if the new variant can avoid protection from the current vaccine, the updated social break will once again make an economic reducer.”
Polling more than 100 economists show the euro zone economy will expand an average of 4.5% this year and 4.3% further, up from 4.2% predicted for the second year last month.
That was compared with a more optimistic European Commission’s projection of 4.8% growth for this year and the next 4.5%, faster than expansion of 4.3% and 4.4% which was estimated in May.
While the latest poll consensus for this year is the highest since January, growth expectations for 2022 were the highest since the voting began for that period in July 2020.
After may have expanded 1.4% the last quarter, the economic block is expected to grow 2.4% and 1.3% in Q3 and Q4, up from 2.3% and 1.2% predicted in June.
Annual growth forecasts for Germany, France and Italy are also enhanced to 3.5%, 5.7% and 4.8% this year averaged 3.2%, 5.4% and 4.1% are predicted in polls April.
While inflation in the single currency block is expected to rise and on average above the target in the second half of 2021, for the full year it is estimated at an average of 1.9% this year and slow to 1.4%.
The ECB is expected to keep the deposit interest rates unchanged at -0.50% and the level of refinancing at zero until the end of next year.
Nearly 90% of economists, or 53 of 60, who answered other questions said the new Covid-19 variant was the biggest risk for the eurozone economy this year. The remaining seven respondents said the slower economic growth rate was the top risk.
No one chose higher inflation or a tapered ECB as a risk.
“Covid-19 remains unknown, and with the potential of the biggest negative impact. It seems that economic growth will slow down substantially in the second half of this year, unless we see the rise of Coronavirus,” said Bas van Geffen, quantitative analyst in the macro strategy in Rabobank.
“Meanwhile, it is true inflation will be high this year, but we believe this is a temporary factor. And the ECB is looking through this, while also paying attention to financial conditions, so I don’t think they will move. With such speed reductions ECB easing will be pose a significant risk. “