ECB Shadow Council Minutes Members advocate lower bond purchases
Most members of Handelsblatt’s Shadow ECB Council consider further net bond purchases in 2022 to be sensible.
Frankfurt However, there were also individual members against the early commitment by ECB President Lagarde to end the PEPP soon and wanted to keep it longer. On the other hand, there were also representatives who called for a complete end to bond purchases and interest rate increases.
Growth and Inflation forecasts revised upwards
Members of the ECB Shadow Council revised their inflation forecast for 2021 upward from 2.1 percent to 2.5 percent. They also revised their forecast upward for 2022 from 1.5 to 2.3 percent and have left their forecast constant for 2023 at 1.5 percent. For 2024 they forecast 1.7 percent.
The members increased their GDP forecast for 2021 from 4.7 to 5.1 percent. On the other hand, they reduced their forecast for 2022 from 4.4 to 4.0 percent and kept the forecast for 2023 constant at 2.3 percent. For 2024 they predict 1.7 percent.
| Shadow Council macroeconomic forecasts (September forecasts in brackets) | ||
| HICP-Inflation* | GDP-Growth | |
| 2021 | 2.5 (2.1) | 5.1 (4.7) |
| 2022 | 2.3 (1.5) | 4.0 (4.4) |
| 2023 | 1.5 (1.5) | 2.3 (2.3) |
| 2024 | 1.7 | 1.7 |
Contributors: D. Antonucci, A. Bosomworth, S. Broyer; F. Ducrozet, J. Henry, J. Krämer, D. Schumacher, K. Utermöhl. *Harmonized Index of Consumer Prices, a weighted average of price indices of eurozone countries. | ||
Omicron probably not a game changer
The members of the Shadow Council see additional economic risks from the new virus variant Omicron. The majority, however, expect rather minor economic effects and do not see this as a game changer for the monetary policy of the ECB. However, several members emphasized that so far each new wave has had a diminishing impact on the European economy.
Inflation is likely to weaken in 2022
With regard to inflation, most Shadow Council members continue to believe that the current surge is temporary. They expect problems such as supply chain disruptions to subside. This – together with the normalization of energy prices – would help to weaken inflation over the coming year. Several members also pointed out that the labor market in the Euro area is nowhere near as tight as in the US, which also speaks in favor of weaker price pressure. So far, from the point of view of several members, there are no stronger signs of second-round effects in the form of higher wages in the Euro area.
Quit PEPP but not QE
Most members are in favor of the PEPP program expiring at the end of March 2022. Several members spoke out in favor of increasing the existing APP program to avoid a cliff effect after the expiry of PEPP due to an abrupt halt in purchases. There was the position to temporarily increase the monthly purchases to 40 billion euros. Some members also voted for a QE envelope worth, for example, 180 billion euros by the end of 2022, which the ECB could distribute flexibly. However, there were also individual voices which criticized the early commitment by ECB President Lagarde to end the PEPP soon and wanted to keep it longer. On the other hand, there were also representatives who called for a complete end to bond purchases and interest rate increases. They argued that the negative deposit rate would cause more damage than good and spoke out for a gradual normalization of policy rates.
Members’ individual vote on the ECB’s deposit rate (currently minus 0.5 percent):
| Member | Affiliation | Deposit rate |
| José Alzola | The Observatory Group | Unchanged |
| Marco Annunziata | Annunziata Advisors | Unchanged |
| Daniele Antonucci | Quintet Private Bank | Unchanged |
| Elga Bartsch | Blackrock | Unchanged |
| Andrew Bosomworth | Pimco | + 0.25 |
| Sylvain Broyer | S&P Global Ratings | Unchanged |
| Jacques Cailloux | Rokos Capital | Unchanged |
| Frederik Ducrozet | Pictet | Unchanged |
| Janet Henry | HSBC | Unchanged |
| Jörg Krämer | Commerzbank | + 0.25 |
| Thomas Mayer | Flossbach von Storch | + 0.50 |
| Dirk Schumacher | Natixis | Unchanged |
| Katharina Utermöhl | Allianz | Unchanged |
Frankfurt, Germany
December 16th, 2021
Written by Jan Mallien
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