Madame President Lagarde sounded quite comfortable with the economic situation in the Eurozone yesterday (10 September), mentioning the recent strong rebound and the improved outlook for 2020E in the latest forecast update from the ECB.
In our view, the ECB, de facto, “marked to market” the GDP estimate on the back of the surveys recovery up until August, but failed to include the challenges that are likely to emerge due to the continuing COVID-19 epidemic, which may lead to stagnation in 2021E.
The press conference showed, for the second time since Madame President Lagarde took over, that the ECB wants to remain well within the comfort zone of its inflation targeting mandate, dodging questions on inequality, the fragmentation of the credit channel and, de facto, not being willing to support a debate on why potential GDP growth in the Eurozone is falling.
We can sympathise with it being standard practice for central banks to avoid getting too close to micro-developments across the territory. However, at a time when the imbalances in the competitive landscape are so blatant, the full consequences of protracted quantitative easing so profound beyond inflation, and the livelihoods of so many citizens under such strain, a little courage to support a broader debate would have helped the resilience of the European project, not the other way around.