Macro Weekly – ECB to set stage for December

by: Han de Jong , Aline Schuiling , Nick Kounis , Georgette Boele , Peter de Bruin , Maritza Cabezas

Macro Weekly-131104-ECB-to-set-stage-for-December.pdf ()

Big Picture: Eurozone inflation surprised significantly on the downside in October. While we are not even close to outright deflation, the ECB’s inflation target of “below but close to 2%” is clearly being undershot. This, combined with high and rising unemployment, suggests that monetary and financial conditions in the eurozone are still too tight. We therefore expect the ECB to take action before long.

Eurozone: Indeed, we now expect the ECB to cut the refi rate by 25bp to 0.25% at the December Governing Council meeting, compared to our previous forecast that it would remain on hold through next year. At the same time, we stick to the view that the central bank will also strengthen its forward guidance at that meeting.

 US: Data relating to the third quarter remains rather soft. We expect that this week’s Q3 GDP report to show that the economy grew by just 1.8% qoq saar, down from 2.5% in the previous quarter. However, data relating to the fourth quarter – especially manufacturing surveys – have been more encouraging, despite the shutdown.

Asia: Manufacturing as well as service PMIs tracking China’s economic activity firmed in October, confirming that the economy has regained some traction over the last few months. Survey evidence was generally positive in other economies, with rises seen in Japan, South Korea, Taiwan and Indonesia.