ECB Governing Council member Klaas Knot said yesterday, “we can take comfort that the euro area in the coming months will take the exact same trajectory, services will also pick up, we expect more than 4% growth over the full year.” Further, he added, “I would argue that there is still significant upside risk actually, and that has to do with pent-up demand.”
“Traditionally we have been very conservative within the ECB, assuming in our baseline projections that the savings rate would just return to its pre-corona level, that there would be no pent-up demand taking place,” Knot said. “I personally think that’s a bit of an overly conservative assumption.”
Nevertheless, inflation is still too low and ECB would need to provide abundant support even if the PEPP purchases end in 2022. “The only thing we are talking about is rotation from emergency support to other forms of unconventional support,” he said, “we will still have the old asset purchase programme, we will still have the negative interest rates in place and most importantly, the targeted longer-term refinancing operations to the banks.”
