Recent data showed that the eurozone economy performed above expectations during the second quarter. Wells Fargo Analysts The data explained that the latest report showed the positive momentum continued into the beginning of the third quarter. Still, they expect the European Central Bank (ECB) to maintain its accommodative monetary policy and indeed ease policy further in December by announcing a further increase in its bond buying program.
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“Second-quarter euro zone GDP grew 2.0% quarter-on-quarter stronger than expected, with particularly strong gains reported for Italy and Spain. Inflation in July was generally contained, as the headline CPI modestly accelerated to 2.2% year-over-year ”.
“The ECB will certainly welcome the improvement in growth, while the moderate inflation trends mean that there is no need for the central bank to adopt a less accommodative monetary policy in the short term. That is reinforced by the ECB’s recent changes to its policy strategy which included a shift to a symmetric inflation target of 2% and the ECB’s dovish policy stance following its July monetary policy meeting. Indeed, given that the latest COVID developments have added some element of near-term uncertainty, we now expect the ECB to refrain from reducing its bond purchases in September and instead indicate that fourth-quarter purchases for the Program pandemic emergency purchases (PEPP) will continue to increase. it will take place at a significantly higher rate than during the first months of this year. “
“If recent COVID developments finally have any influence on sentiment and activity, and more importantly, if core inflation trends do not move significantly higher, we expect the ECB to announce a further increase in purchases. bond. Our baseline scenario for the European Central Bank’s monetary policy announcement in December is for the central bank to announce an additional € 500 billion increase in PEPP purchases, bringing the size of that program to € 2.35 trillion, and purchases under the PEPP program they will continue until at least September 2022 “.
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