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The European Central Bank has today raised its forecast for economic growth in 2021, as the euro zone recovery gathers pace following the easing of many pandemic curbs.

The euro zone economy is now expected to grow by 5% this year, up from 4.6% in the last forecast, and by 4.6% in 2022, slightly down from 4.7%.

The forecast for 2023 remained unchanged at 2.1% growth, ECB President Christine Lagarde said.

Ms Lagarde said the rebound phase in the euro area economy was “increasingly advanced”.

Meanwhile, consumer prices in the euro zone are expected to rise by 2.2% in 2021, but the jump in inflation is expected to be only temporary, Christine Lagarde also said today.

“In the medium term, inflation is foreseen to remain well below our 2% target,” she told journalists, as the European Central Bank also raised its inflation outlook for 2022 to 1.7%, and for 2023 to 1.5%.

The European Central Bank said it will slightly reduce its emergency bond purchases over the coming quarter,a token step towards unwinding the emergency economic aid that propped up the bloc during the pandemic.

The ECB will in the next three months buy bonds under its €1.85 trillion Pandemic Emergency Purchase Programme (PEPP) at a pace moderately lower than the €80 billion a month it bought over the previous two quarters.

“The Governing Council judges that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the pandemic emergency purchase programme (PEPP) than in the previous two quarters, ” the ECB said.

But it added that it would buy bonds flexibly, according to market conditions, looking to prevent a tightening of financing conditions that is inconsistent with its inflation aim.

The emergency scheme, the ECB’s main tool since the onset of the pandemic, remains set to be wound down next March at the earliest, the bank added.

But it did not give any further hint on when and how it would recalibrate its policy to accommodate for PEPP’s end.

The ECB has provided record support since the outbreak of the novel coronavirus last year but with growth and inflation rebounding, policymakers came under pressure in recent weeks to formally acknowledge that the worst of the crisis is over.

The ECB also did not signal any further withdrawal of support and even maintained its long-standing guidance that it will ramp up support further if it becomes necessary.

“The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation stabilises at its 2% target over the medium term,” the ECB said.

It added that bond purchases under its Asset Purchase Programme (APP) will remain at €20 billion a month.

Its deposit rate, now at a record-low of -0.5%, will remain at its current or lower level until it sees inflation hitting its 2% target well before the end of its projection horizon.

Christine Lagarde also said that the ECB’s decision today to slow the pace of its pandemic-emergency bond purchases does not equate to “tapering” – a term used to describe the gradual withdrawal of stimulus measures.

“The lady isn’t tapering,” Ms Lagarde told a press conference, as she appeared to paraphrase former British Prime Minister Margaret Thatcher.

“What we are doing is recalibrating” the programme in response to favourable economic conditions, she said.

The size and end-date of the €1.85 trillion scheme remain unchanged.

Article Source – ECB trims emergency support, but insists ‘no tapering’ – RTE

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