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ECB steps are not a “silver bullet” - Wells Fargo

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 11, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Analysts from Wells Fargo welcomed the steps that the European Central Bank announced on Thursday. They think they will support growth in bank lending and ultimately economic growth at the margin; but they do not expect these policy steps to lead to a resurgence in real GDP growth in the Eurozone.

    Key Quotes:

    “While we certainly welcome the steps that the ECB announced today (Thursday, March 10), we would caution that they are not a “silver bullet.” That is, these policy changes may help to stimulate economic growth on the margin, but they are not likely, by themselves, to lead to a sharp strengthening in the rate of economic growth in the Eurozone. The ECB started to use the Long-term Refinancing Operations (LTRO) program aggressively in the dark days of the sovereign debt crisis in 2011 and 2012, and it rolled out its TLTRO program in September 2014. QE started about a year ago.”

    “What has the ECB accomplished with these measures? Bank lending, which contracted from 2011 to 2014, is growing again. At its current year-over-year growth rate, however, bank lending is hardly robust. The euro area economy is expanding, but at a sluggish rate, and the core rate of inflation in the Eurozone has shown no signs of moving higher. Have the ECB’s policies over the past few years helped to cushion the economy and prevented it from sliding back into yet another recession? Undoubtedly they have.”

    “This last paragraph of the ECB’s statement may explain Draghi’s comments that the ECB is not likely to ease further, at least not in the foreseeable future. In our view, the GC is sending a signal to European politicians that they cannot sit idly by while the ECB does all the heavy lifting. Politicians in Eurozone countries need to make some difficult political decisions regarding structural reforms and the need for fiscal expansion. Only time will tell if the message has been received.”
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