The Eurozone is headed for recession, but it may not be the ‘hemorrhage’ that was envisioned with gas prices above €200 in September. So, while the pace of rate hikes could slow as early as December on the Fed’s terms, the ECB isn’t stopping monetary tightening. Less than a month before the Dec. 15 meeting, Frankfurt is starting to summarize data from the past few weeks, meaning November’s PMI index, or Germany’s Ifo confidence index, was better than expected. Despite some ‘bleak’ expectations for 2023 with a global recession, “the ECB and the EU forecasts go in the same direction, towards lower growth and higher inflation in the European economy”, explains ECB Vice President Luis de Guindos. in Milan. Reports from the ECB meeting at the end of October portrayed the situation as follows: after stagnation in the third quarter, the economies of nineteen countries were “moving into a technical recession” in the following two quarters. But chief economist Philip Lane described “a very different scenario from the prolonged period of negative growth” and in the ECB’s staff projections for September ‘ and the adverse situation described (rising energy prices and rationing).
What the ECB will decide in December is perhaps best summed up in the words of the Irish governor: “rates have to go up” and it’s too early to say “I won’t rule anything out”. De Guindos expected inflation to start slowing down “in the first half of next year” and “maybe we’re the closest we’ve come”. After two maximum hikes of three-quarters of a point in September and October, the words rule out the possibility that the ECB wants to do the same next month. After all, the Fed has signaled that it is slowing down amid the difficulties in the US economy. The ‘minutes’ of the October 26-27 meeting already stated that “many members” would prefer a more cautious rate hike of half a point. The front of the ‘pigeons’ woke up with the new attitude of the governors of Fabio Panetta, the executive director of the Bank of Italy, Ignacio Visco. But the last word has not been said. Isabelle Schnabel of the ECB’s Executive Committee says the room for maneuver to reduce the money supply “remains limited” and is not a ‘hawk’ like the Dutch class note, which calls for bringing monetary spending (still wide) into a controlled zone. Of course “we have to raise further”, the ECB rate on deposits still has a way to go as it stands at 1.50% against the Fed’s 3.75-4%. A settlement is likely in December. Slow down the squeeze to half a point. But this is a compromise. Hundreds of billions in bonds bought over the years were eliminated.
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