ECB says euro area economy rebounding firmly, risks 'balanced'
The European Central Bank said the risks to growth and inflation were "broadly balanced" and that the euro area economy was now rebounding firmly.
Economic activity might outperform the ECB's expectations if consumers grow more confident or if the pandemic situation improved more quickly, European Central Bank chief, Christine Lagarde, said in her introductory remarks at Thursday's press conference.
Indeed, the number of people in job retention schemes in the euro area had fallen by 28m since the peak reached in 2020, she added.
On the other hand, worse outcomes could not be ruled out.
Furthermore, the ECB's new staff forecasts still foresaw consumer price inflation undershooting the central bank's 2.0% target out to 2023.
Nonetheless, she and ECB vice-president, Luis de Guindos, said that the euro area economy was now rebounding firmly.
Hence the ECB governing council's "unanimous" decision, announced earlier, to "moderately" recalibrate and lower the lender's bond purchases under its Pandemic Emergency Purchase Programme over the next three months.
Fresh ECB staff projections were for euro area growth to rebound firmly over the "medium-term".
The bloc's gross domestic product was now expected to grow at a real annual pace of approximately 5.0% in 2021, 4.6% in 2022 and 2.1% in 2023.
Those projections marked an upward revision for 2021, while those for 2022 and 2023 were "broadly unchanged".
Headline consumer price inflation meanwhile was seen reaching an annual pace of 3.0% in August, rising further in Autumn and declining in 2022, with Lagarde describing it as "transitory".
Among the factors that were pushing CPI higher, she noted oil prices, the reversal of German VAT, delayed summer sales and cost pressures from "temporary" shortages of materials and equipment.
Measures of inflation expectations had continued to rise but remained some distance from the ECB's two per cent target, Lagarde added.
ECB staff now saw headline CPI rising by 2.2%, 1.7% and 1.5% across 2021-23.
Core CPI was seen advancing by 1.3%, 1.4% and 1.5% over those same years, with all of the new projections marking upward revisions versus the staff's June forecasts.
Lagarde also said she did not see the euro area economy falling into so-called stagflation.
"The 'calibrate, not taper' narrative gave us deja-vu of the December 2016 press conference. Further TLTRO operations will be discussed alongside the general stance at the December meeting, but will be data dependent," said analysts at Danske Bank.
They also noted Lagarde's confirmation during the presser that, as ECB chief economist Philip Lane had pointed out in the past, the APP should not be judged in isolation of the net supply in issuance.
"Overall, we largely share the ECB’s cautiously optimistic outlook for the economy and transitory inflation narrative."