Ecb to send dovish policy signal, amid weaker macro data

Despite recent comments regarding a possible tapering of asset purchases by the ECB, we do not believe that this is likely to be announced at this week’s policy meeting.

We think that the ECB will want to wait further reports regarding current economic activity, with most recent surveys pointing clearly towards a slowdown.

The updated ECB staff forecasts are likely to include lower growth projections for this year, and only modest rises in inflation – sending a dovish policy signal, overall. Meanwhile, latest ‘hard’ economic data – including industrial production output in April – indicate soft activity across countries. Industrial production declined both in core Europe – with France experiencing a large decline in energy production – and in peripheral countries. Regarding the latter, Italy’s output fell 1.2% on the month, slowing to an annual growth of 1.9% YoY.

We note that with sentiment clearly worsening – in France, the industrial business sentiment published by the central bank fell 2 points last month – further arguments can be found for a prudent, dovish ECB communication strategy.

Gero Jung – Chief Economist – Mirabaud AM