Eurozone: European Commission assessed budget drafts

ECB: No new asset purchases yet

Eurozone: European Commission assessed budget drafts

Austria: Economic growth forecast revised downwards

US: Labor market data crucial for interest rate expectations

ECB Council meeting next Thursday

The most followed event in the Eurozone will be the ECB’s monetary council meeting on Thursday. Markets will be waiting for more concrete information concerning an additional asset purchase program. We think that ECB President Draghi will not yet announce such a program. Rather, Draghi will confirm the ECB’s wait-and-see stance in this regard, but also the clear commitment to expand the ECB’S balance sheet by one trillion euro by summer 2016. At a recent speech, the ECB Vice Governor made the further proceeding of the ECB quite clear, in our view. He said that, in the first quarter of next year, the ECB Council will be better able to assess the progress towards the goal of expanding the balance sheet to early 2012 levels. If the progress does not meet expectations, the ECB would have to consider buying other assets, including sovereign bonds. Given these statements, it seems quite clear that President Draghi is unlikely to announce an additional asset purchase program on Thursday. Also pointing in this direction is the fact that the result of the next liquidity providing TLTRO operation will only be known one week after the ECB meeting. Any previous action by the ECB would indicate little confidence in the measures already taken.

European Commission evaluates budget drafts 2015

Today (Friday), the European Commission released the results of the evaluation of the budgets of member states. For the 2015 budgets of seven countries, there is a risk of non-compliance with the rules of the stability and growth pact. These are Belgium, Spain, France, Italy, Malta, Austria and Portugal. Regarding Austria, the lack of progress in reaching the targeted structural deficit has been criticized. In addition, Italy is at risk of missing the debt benchmark as well. For France, the progress toward reaching the targeted structural deficit is also not enough. In the cases of France, Italy and Belgium, the budgets could have implications for further measures in connection with ongoing deficit procedures. The budgets of these countries will therefore be examined again by the EC in March 2015, when budget laws and structural reforms should have been decided upon.

US Labor Market Report crucial for next FOMC meeting

The next week will end with US labor market data for November, which will determine expectations for the outcome of the next FOMC meeting less than two weeks later. Accordingly, the labor market data could move markets one more time before the end of the year. The crucial factor will be the pace at which the recovery of the labor market proceeded.

Austrian economic growth forecast revised downwards

As the newly available data showed somewhat disappointing economic development in both Austria and the Euro Area, we have revised downwards our forecast of Austrian GDP. According to our new forecast, the Austrian economy will grow at only 0.5% in 2014 (instead of the previously assumed 0.8%) and will accelerate up to 1.1% in 2015, which is 0.5 percentage points less than in the September forecast. The main reason for this slowdown is the decline in exports of goods to several important export destinations, such as Germany (30% of total Austrian exports), Italy (5% of total exports) and France, as well as some major Eastern European markets, such as the Czech Republic. The restrained export development and geopolitical tensions have had a negative effect on investment. This is also confirmed by sentiment indicators, which have been in a downward trend since mid-summer. Inflation in Austria remains high compared to the other major Euro Area economies, at 1.6% in 2014 and 1.7% in 2015. This, combined with only moderate wage growth, keeps private consumption from accelerating. Both components, private consumption and investment, should grow at a relatively cautious pace until the end of this year and in the first half of next year.