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The eurozone’s gross domestic product (GDP) is expected to contract 2.2 percent in the fourth quarter, according to a new ECB forecast.
At the same time, the ECB is lowering its growth forecast for 2021. The recovery has been postponed due to a further spread of infections and new closures.
Inflation was disappointingly low
Unemployment and loss of income combined with an exceptionally high degree of uncertainty about the future development of the pandemic also has a negative effect on both consumption and business investment, according to Christine Lagarde.
– Inflation is disappointingly low. It has been negative for the past three months and is now down again at minus 0.3 percent, he says at the same time at a press conference after the interest rate announcement.
In addition to lower energy prices, a stronger euro contributes to low inflation.
– We do not have benchmarks for exchange rates. But it is clear that exchange rates, and especially the strengthening of the euro, play an important role and are a factor that depresses prices, says Lagarde.
Interest rates on two- and ten-year government bonds are rising following the announcement of more ECB support purchases. At the same time, the euro strengthens somewhat against the dollar.
There is still great uncertainty about the development of the pandemic and when vaccines against covid-19 can begin to be implemented on a broad front, the ECB warns in connection with the announcement.
The program expands
The decision, which was in line with market expectations, means that the ECB will contribute € 500 billion in support purchases under the Pandemic Emergency Purchase Program (PEPP). In total, the PEPP will be increased to € 1.85 billion (equivalent to SEK 19 billion).
The program will also run until at least March 2022.
The ECB also warns that the plan is to reinvest with new support purchases under the PEPP to replace bonds in the portfolio that mature for at least another two years.
More parties will also have access to liquidity loans from the ECB, the so-called TLTRO III loans, at the same time that this program is extended until June 2022. The ECB will also carry out three new rounds of liquidity loans during the second half of 2021.
Spread of infections and stops
However, as expected, the ECB refrains from cutting the key interest rate from zero and the key deposit rate of minus 0.50 percent is also unchanged.
The ECB has presented the increase in support purchases and liquidity loans from the euro zone for the second time during the covid-19 pandemic with cross references, with a contraction of GDP.
At the same time, a new economic setback threatens in the New Years, when the UK completes Brexit and leaves the domestic market.
If there is no trade agreement, extensive trade between the eurozone and the UK will be subject to tariffs and other border barriers.
Joakim Goksör / TT
The eurozone’s gross domestic product (GDP) is expected to contract 2.2 percent in the fourth quarter, according to a new ECB forecast. This, in turn, is estimated to result in a reduction in GDP for the full year 2020 of 7.3 percent.
Despite the unexpected drop in the fourth quarter, this is a slightly smaller drop than the GDP growth rate of 8% for 2020 that the ECB forecast in September.
At the same time, the recovery is expected to be postponed and slower than expected. GDP growth in 2021 is estimated at 3.9 percent, compared with 5 percent in the September forecast.
However, for 2022, the ECB raises its growth forecast to 4.2%, from 3.2% in September. At the same time, the forecast for 2023 is growth of 2.1 percent.
Source: ECB
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