It emerges from the ECB’s account of the September Governing Council meeting that members have discussed, amongst other things, the possible impact of growing protectionism on world trade. Individual ECB officials have voiced concern that an escalation in the trade dispute could put a more lasting damper on the growth outlook for the eurozone. By contrast though, it was noted that the domestic resilience of the European economy has become more robust. Ultimately, the monetary custodians agreed to abide by their assessment that risks to the economic outlook are broadly balanced. We take the line that Dr. Draghi and his team will once again conduct a controversial debate about this point at the October meeting of the Governing Council. After all, the IMF has recently lowered its growth forecast for the global economy.
With regard to price developments, the ECB is confident that the inflation rate is going to move in the desired direction. In the monetary custodians’ view, uncertainty about the inflation outlook appears to be receding. The central bank’s top echelons pointed in this context inter alia to the fact that rates of capacity utilisation have moved higher across the European economy. Members also noted a gradual pick-up in wage growth, generally seen as reflecting a tightening labour market. Admittedly, the ECB’s top policymaking committee also underlined that the transmission of higher wages to consumer-price inflation remained uncertain. At the September Governing Council meeting, it was also discussed how an escalation in the trade conflict could impact inflation rates: while a possible negative supply shock arising from protectionist measures would imply rising inflation, this might be more than offset by a negative demand shock. The ECB expressed the view that it was not clear ex ante which of these two effects would dominate with respect to prices.
The ECB’s latest monetary-policy account generally confirms our assessment that the monetary authorities will adhere to their existing monetary-policy stance for the time being. The bond purchases under the APP ought therefore to be wound down on schedule at the end of the year. The ECB will probably announce further details about its reinvestment policy on one of the next two occasions on which the Governing Council is due to convene. In this context, we are admittedly only expecting relatively minor adjustments: in our opinion, the most probable would involve extending the period of time within which reinvestments have to take place.