lunes, 24 de agosto de 2015

lunes, agosto 24, 2015

Grim GDP Data Highlight ECB’s Limits

By Brian Blackstone
 

European Central Bank officials could be forgiven if they channeled their inner Jack Nicholson when examining lackluster second quarter GDP figures on Friday and said: “What if this is as good as it gets?”

On the surface, the 0.3% quarterly rise in gross domestic product, or 1.3% annualized, was decent. After all, the eurozone suffered from a pair of recessions since 2008, and a debt crisis. France and Italy—its second and third biggest economies, respectively—face deep rooted competitiveness problems.

Even its powerhouse Germany can’t be expected to expand more vigorously until it finds ways to increase the size of its labor force amid an ageing population.

Still, the 1.3% annualized growth came against a backdrop of just about the best trifecta of positive forces any economy can get: a weaker exchange rate; rock-bottom interest rates and tumbling oil prices. For a European economy that should have a lot of pent-up demand, this should have been a recipe for growth rates above 3%.

The weaker-than-expected result raised the inevitable question of whether the ECB will eventually have to extend its EUR60 billion per month quantitative easing program beyond its targeted September 2016 expiration date. Sure, that’s a possibility. The ECB itself has fanned those hopes, saying in its mid-July meeting minutes —released last Thursday—that “there was no reason for complacency” and that confirmation of the bank’s ongoing stimulus policies “needed to be complemented by communicating the Governing Council’s willingness to respond, if needed” to downside economic risks.

But it remains to be seen how the eurozone would benefit even if the ECB vacuumed up hundreds of billions of euros more in public and private bonds than it already plans to. The euro might fall more, and borrowing costs might too, but it remains doubtful how much more this will benefit the economy.

That makes a couple of references in the ECB minutes all the more noteworthy. For one, officials warned: “The recovery in the euro area was expected to remain moderate and gradual, which was considered disappointing from both a longer-term and an international perspective, as real GDP currently stood only close to its 2008 level in the euro area, while in the United States it had registered a significant rebound.”

Another, an even more telling nugget was this: “It was recalled that a sustained improvement in the outlook for economic growth, beyond a cyclical recovery, was not in the hands of monetary policy but required determined contributions from other policy areas, including fiscal policy and structural reforms.”

This is a common refrain from central bankers. But for the ECB is takes on even more relevance given the eurozone’s apparent immunity to stimulus.

Jack Nicholson won an Academy Award for ‘As Good as It Gets.’ The stakes are higher for the ECB in finding an answer to his famous question.

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