ECB still far from exiting monetary stimulus policies: HSBC report
2013-07-09 16:37:16
Although signs of stabilization are emerging in the eurozone, the European Central Bank (ECB) is still far from exiting or scaling back its monetary stimulus policies, said the HSBC in a report on Monday.
"There have been a few tentative signs of stabilization, or at least less deep recessions, in most of the eurozone. Among the purchasing manager's index (PMIs), the export orders for Spain and Italy have recovered strongly. However, the kind of recovery we are forecasting is still feeble," said the HSBC in its quarterly report.
The political and economic challenges for the eurozone remain enormous and with the US Federal Reserve making noises about starting to normalize policy, the ECB's task of keeping monetary policy appropriately loose for the monetary union has just recently got harder, highlighted the HSBC.
"Growth is still not coming back, unemployment rates are rising to socially unacceptable levels and debt projections continue to be revised up. The limits to austerity are being reached and populations and politicians are becoming more vocal in saying so: Portugal is the most recent example," the report said.
The HSBC forecast that the eurozone GDP growth would be only 0.6 percent in 2014, 0.5 percentage point lower than the ECB's expectation.
Therefore, the ECB is nowhere near the exit, said the HSBC.
"The latest communication from ECB head Mario Draghi, which stated that key ECB interest rates - including the deposit rate - would remain 'at present or lower levels for an extended period of time,' represented a significant change of tack from a central bank that always used to say it 'never pre-commits,'" it said.
While the ECB works to offset the impact of Fed tapering on European rates markets, volatility in individual countries appears just as likely to come from politics as economics, according to the HSBC.
"Greece is requesting further debt write-downs; Cyprus wants to redesign its brand new Troika program, and Ireland is asking for the European Stablility Mechanism (ESM) to retrospectively recapitalize its banks in order to lower the debt burden. Portugal is still trying to keep its ruling coalition together," summarized the HSBC.
But it noted, "The contagion effects from any country specific developments have been limited. For the bigger picture story in the euro zone, the main political event is clearly the German elections. There currently remains a sense that little can happen ahead of it.