[ad_1]
The deepest economic crisis in post-war history is emerging. Economists expect the ECB’s crisis policy to be long, and some experts expect bond purchases to increase significantly.
The interest rate meetings of the European Central Bank (ECB) and the United States Federal Reserve this week deal with the virus crisis. Due to the unprecedented economic downturn as a result of the pandemic, US dollar guards on Wednesday and eurozone money watchers on Thursday may again be needed as fire extinguishers.
Economists expect the euro area economy to shrink 3.4 percent in the first quarter. However, before the crown shock began, the US economy. USA It was in much better shape than it was in the euro zone, so the drop in the first quarter should not be as drastic. But it is already clear that the virus pandemic will trigger the deepest economic crisis in postwar history worldwide.
“The ECB has to prepare for a longer defense battle,” said economist Ulf Krauss of Helaba Bank. Despite the monetary policy support measures that have already been launched, a quiet interest rate meeting is not expected on Thursday: “We believe the ECB has already done a lot, but more will be needed,” bank economists said. investment fund Morgan Stanley. . The institute expects the euro area economy to collapse by 10 percent in 2020. To counter this, the ECB is likely to increase its new pandemic bond purchase program by € 1 trillion in the coming months, in two tranches of 500 billion euros each, “one in June and the other at the end of 2021”, Experts say ahead.
According to Christian Lips, chief economist at NordLB, the ECB has already decided to inject large amounts of liquidity and completed its 2020 bond purchases at € 1.1 trillion. To this end, they relaxed collateral regulations for banks. However, risk premiums for Italian government bonds have increased significantly recently. According to traders, this fueled fears of a new sovereign debt crisis in Europe.
“So we assume that the ECB will make another move,” says Lips. “This will certainly include more bond purchases, but probably also a reduction in the deposit rate.” A large part of the money will be exempt from the interest of the fine. Since September 2019, the ECB has charged an interest penalty of 0.5 percent on funds that commercial banks park with it overnight.
Leads into sight
However, many economists assume that the head of the ECB, Christine Lagarde, will wait again on Thursday. The reason: The central bank wants to examine how already decided aid measures have had an impact. In Commerzbank economist Michael Schubert’s opinion, tactical considerations should also play a role. The ECB has always been very much in favor of a strong common approach to fiscal policy in the euro area. “If you now take additional measures in advance, this would reduce the incentive for governments in the euro countries to take more aid measures at the European level.”
The motto currently applies to the American monetary authorities: drive in plain sight. Fed watcher Bernd Weidensteiner of Commerzbank does not anticipate any further action after the central bank has already launched billions of emergency programs and sets the key interest rate at near zero. The Fed can certainly point to success as a crisis aide. This would have reduced liquidity problems in major markets, including the US government bond market. USA Fed chief Jerome Powell will also point to these successes at the press conference after Wednesday’s meeting: “Above all, he will underline that the Fed will act again if necessary,” said the Commerzbank economist.
This does not seem unrealistic in light of the devastating effects of the virus pandemic on the labor market and economy in the United States. In a few weeks, the crisis destroyed job creation from the previous boom decade. This also increases the dangers of full employment sought by the Fed suddenly turning into mass unemployment. The economy is also facing an equally bleak development: after a long recovery period, a severe recession threatens.
A few hours before the Fed meeting on Wednesday night (CEST), the figures for gross domestic product (GDP) should be released in the first quarter: economists expect an annualized minus of 4.0 percent after an increase 2.1 percent in Q4 2019. “I expect a clear decline in economic growth figures for the initial quarter of 2020, particularly in Europe, but also in the US, which should be followed by negative rates of two digits in the current second quarter, “fears Robert Greil, chief strategist at Merck Finck. The economic recession did not leave governments or central banks an option, but instead took additional measures to support and recover the economy.
(APA / Reuters)
