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Ethenea on the upcoming ECB meeting: we do not expect a further asset purchase programme to be announced

Munsbach, 9 September 2019 – We are still seeing relatively low economic growth in the eurozone. While France and Spain have achieved comparatively good results this year, both Germany and Italy have underperformed.  Furthermore, despite solid job and wage growth, inflation figures in the eurozone are still well below the targeted 2%. Although at the central bank’s July meeting Mario Draghi stated that the ECB stands “ready to adjust all of its instruments”, recent comments by several ECB members have indicated that the council is split on whether an additional Quantitative Easing (QE) programme is warranted. Therefore, in our view, the ECB will not announce a further asset purchase programme at its upcoming meeting but will defer any discussion of this topic to subsequent meetings. In light of the favourable refinancing conditions available in the eurozone for both sovereign debt and for most large corporates, there is currently no need for further assistance. The new TLTRO (Targeted Longer-Term Refinancing Operations), on the other hand, is designed to provide credit to smaller corporations at attractive costs. Overall, in the eurozone, credit supply is not a major problem. Instead, its economy is primarily suffering from weak international trade due to new tariffs, with this problem compounded by the uncertainties surrounding Brexit. As the ECB has no influence on trade obstacles, it can only try to mitigate the consequences. In this respect, the central bank is successful. Although additional economic relief could come from the fiscal support already proposed by incoming ECB President Christine Lagarde, we will only see a significant improvement in the eurozone economy once a permanent solution to the various trade conflicts is reached. This means that any potential rate cut by the ECB will have little, if any, impact. However, a prosperous service sector in the eurozone, together with sustained job and wage growth, will support the economy considerably and will prevent it from weakening significantly.