ECB: Weakness has spread, while inflation remains a concern – ABN AMRO

Analysts at ABN AMRO notes that ECB President Christine Lagarde struck a dovish tone in remarks at a hearing of the Committee on Economic and Monetary Affairs of the European Parliament.

Key Quotes

“She noted that the outlook for the global economy remained ‘sluggish and uncertain’ and that this was weighing on investment and exports, with the manufacturing sector slowing the most due to these developments. At the same time, she noted that the weakness was spreading saying that the Governing Council was ‘seeing signs of spillovers to other parts of the economy, with recent survey data pointing to some moderation in the services sector’.”

“The weakness in the economy had ‘been affecting price developments, which remain subdued’ and she added that ‘inflation expectations are at or close to historical lows’. Against this background she talked up the effectiveness of the ECB’s tools saying that ‘monetary policy can respond effectively even when growth is being dampened by external factors’. She asserted the ECB remained ‘resolute in its commitment to deliver on its mandate’ and added that ‘monetary policy will continue to support the economy and respond to future risks in line with our price stability mandate’.”

“We think her comments are consistent with our view that the ECB will announce a second stimulus package in the coming months (most likely in March of next year).”

“Finally, the ECB President hinted that the review could take a while to complete, saying that it would require ‘ time for reflection and for wide consultation’.”