Interest rates and economic outlook ahead of the ECB meeting today at 14:45

European Central Bank President Christine Lagarde can consider herself fortunate — the euro-area economy has brightened just in time to allow her to focus on a strategic review that could last the rest of the year.

The Governing Council’s policy decision on Thursday will be dominated by the announcement of the first appraisal of its inflation goal since 2003, plus a deep dive into new challenges such as climate change and digital currencies. That’s partly because economic concerns have faded with U.S.-China trade tensions easing, Brexit back on track, and monetary support locked in.

It’s unclear how long the respite will last — U.S.President Donald Trump used his appearance at the World Economic Forum in Davos to again threaten tariffs on the European Union, and the EU’s looming trade talks with the U.K. hold room for surprises. But for now, as Executive Board member Yves Mersch said last week, the ECB is at least able to point to “good signs of stabilization.”

Economists expect the deposit rate to stay at minus 0.5% and quantitative easing to remain at 20 billion euros ($22 billion) a month when the decision is announced at 1:45 p.m. in Frankfurt. Lagarde’s briefing begins 45 minutes later.

Economic Outlook

Despite a manufacturing slump, euro-area unemployment is holding close to a record low and the services sector grew at the fastest pace in four months in December. Economic confidence improved and inflation accelerated to the fastest pace in six months, albeit mainly because of energy prices.

In Germany, the bloc’s largest economy and a particularly weak spot for factories, investor confidence is at the highest in more than four years and stocks are near a record high.

The ECB predicts euro-zone GDP growth will slow slightly to 1.1% this year from 1.2% in 2019 then pick up in 2021. It first described the risks to its outlook as being “to the downside” a year ago, and one question is whether it’s ready to drop that language just yet.

 Trader Georgi Bozhidarov

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