ECB to leave quantitative easing policy unchanged

As Europe battles its way through mounting COVID-19 concerns, the European Central Bank (ECB) has stated its existing quantitative easing measures will remain as is.

The news comes as Germany confirms that they will extend their national lockdown measures until 14^th February as a result of the highly contagious COVID-19 variant. Despite drops in infection rates, it’s thought that Denmark and the Netherlands will also follow suit. The Prime Minister of Denmark, Mette Frederiksen, stated: “if we don’t contain the pressure, we may risk an exponential increase in infections.”

Although France has stated that coronavirus remains ‘worrying’, they will not impose another national lockdown just yet, believing the 6pm curfew to be adequate for now.

Whilst the UK has been rolling out vaccines at a rapid rate since December 2020, now having vaccinated over 6 million people, the Eurozone has experienced delays in administering jabs. Vaccines across the Eurozone only began rollout in January with just the Pfizer vaccine currently available. In a bid to combat the spread of coronavirus, the Eurozone is expected to accelerate its vaccination efforts over the coming weeks, with the aim to vaccinate 70% of the population by the summer.

What are the  ECB’S latest quantitative easing measures?

In December 2020, the ECB confirmed new quantitative easing measures, with plans to inject EUR 1.85tn into the Eurozone economy.

With Europe’s economic outlook seemingly bleak, it was speculated whether the ECB might add to its fiscal stimulus to help support the economy further. During today’s conference, ECB president, Christine Lagarde, stated that the bank would leave its stimulus measures as is.

Furthermore, it’s been hinted that the ECB’s quantitative easing programme might not run its full course. Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, clarified by saying “a survey conducted by Bloomberg ahead of today’s meeting, outlined that 40% of the sample predicts that the central bank will not spend the full amount.” Economists are of this belief as not allowing the programme to run in full would keep financing costs low for Eurozone governments.

State of Eurozone Economy

The increase of COVID-19 restrictions across the eurozone has placed huge pressure upon the services sector, with the hospitality industry being particularly hard hit. Bars and restaurants in Germany are currently closed completely, with other European countries imposing early curfews preventing business during popular hours. The re-introduction of lockdown measures in additional European countries will undoubtedly wreak further havoc upon the Eurozone economy.

The ECB has not revised their economic predictions stated in December, where they forecast a 3.9 per cent growth for 2021, after an estimated contraction of 7.3 per cent in 2020.

On a more promising note, Germany, the largest economy in the Eurozone saw an uptick in manufacturing during December despite lockdown measures. Recent data has shown that Germany’s manufacturing PMI rose to 58.3 in December, up from 57.8 the previous month, which was their best month since 2018.

With the Eurozone looking to accelerate their vaccination efforts, it’s thought that this will help provide a significant boost to the economy.  Joseph Little, global chief strategist at HSBC Global Asset Management stated that “As the vaccination program gathers pace across the euro zone, the economy should begin to recover from the Spring.”

Pound to Euro (GBP/EUR) steady following UK vaccine developments

The Pound to Euro (GBP/EUR) exchange rate is holding steady thanks to the UK’s rapid vaccine rollouts, as Sterling seems to be moving away from Brexit sensitivity. Though the UK currently has the highest COVID-19 death rate in Europe, swift vaccine rollouts are helping to alleviate concerns.

At the time of writing, the British pound to euro (GBP/EUR) exchange rate stands at EUR 1.13, the highest rate in 9 months. The progress of the currency pairing was boosted by UK inflation data, which revealed that the UK Consumer Price Index (CPI) increased by 0.6% year-on-year in December and up from 0.3% the previous month.

The progress of the British pound to euro (GBP/EUR) pairing will be heavily reliant on the fate of coronavirus infection rate It’s expected that further positive vaccine developments will help to contain the spread of the new variant, providing an overall more optimistic economic outlook.