A shift in forward guidance does not exclude an extension of asset purchases

According to its latest minutes, the ECB’s future communication will evolve gradually if activity continues to expand, a view widely shared among Governing Council members.

In particular, ECB members focused on a gradual transition from the present conditionality of the APP to a broader concept of forward guidance, comprising various dimensions of the monetary policy stance.

On ‘hard’ economic data, business investment decelerated slightly to 22.4%, while firms’ profit shares increased to 41% in the third quarter. In November, industrial production continued to increase by 3.2%, thanks to strong manufacturing and energy activity.

On the labor market, the unemployment rate declined 1.1 point over the past 12 months to reach 8.7%. This level is closer to the ECB’s target for this year (8.4%). Despite the significant decline in the unemployment rate, we do not expect rising inflation pressures. In line with this, the ECB saw some comfort in wage dynamics but also noted that the share of the HICP basket that reacts to the output gap has probably changed. As a consequence, we still expect an extension of asset purchases beyond September.

Gero Jung – Chief Economist – Mirabaud AM