Swathi Nair

BENGALURU – Euro zone inflation looks hotter than anticipated a month back, according economists polled to Reuters. This may put pressure on European Central Bank policy to ease once the Omicron pandemic has passed.

The virus is still a risky card for the short-term. There are many forecasts of economic growth from Jan 11-18, and the median quarter forecast has been cut to 0.5%, down 0.7% from 0.7%.

The Omicron version will have more economic impact than Delta. This is due to the fact that there are less restrictions.

The seventh consecutive survey shows that inflation projections are rising for this year. They have risen by 0.6 percent each to 4.1% for the first and third quarters, respectively. These numbers are well beyond the ECB target of 2.2%.

Bas van Geffen from Rabobank’s senior macro strategist said, “In the short-term, we see some downside in growth stemming virus containment actions,” referring to this quarter.

We expect slower growth in the long-term, as supply driven inflation reduces household’s real spending power. This affects consumption and GDP of the euro area. Omicron and other strains may further aggrave this negative effect of cost-push inflation,” he stated.

Inflation is rising in the Euro zone, as it does in most of the rest. However, the highest point was probably in the fourth quarter.

The record breaking 5% annual consumer price increase was reached last month. The ECB is not averse to tightening its policy and maintains that prices will be lower this year.

The polls support this view so far. Inflation is expected to fall to 1.9% in the fourth quarter, which is just below its target. It will then average below 2.0% thereafter.

Nearly all economists expected that policy interest rates would remain steady through next year.

Rabobank’s van Geffen stated that “Monetary policies cannot address supply-side inflationary surprises like energy scarcity, supply chain shocks and global food prices. After all, the ECB cannot create food or semiconductors.”

There were 39 economists with a 2023 rate forecast. However, there was a split between those expecting a rate rise and those that saw it happening in the second or first half of 2019.

Comparative analysis revealed that analysts are more likely to expect higher rates in the first quarter of next year, compared with the December poll. One analyst expects that rates will rise in the coming year.

It is a stark contrast to the U.S. Federal Reserve. It is facing the most severe inflation since 40 years and will raise its federal funds rates from nearly zero to March.

Some economists suggest that the ECB must also act soon.

Both zero and negative interest rates are only emergency measures. With inflation above target and inflation risks tilted to the upside as well as a tight labour market and a closed output gap there is no reason to keep rates that low,” said Jörg Angelé, senior economist, Bantleon Bank.

“It’d be better for ECB not to wait too long before reversing their ultraloose monetary policies in small steps. It should not wait too long to reverse its ultraloose monetary policy and avoid a possible recession.

When will the ECB end the Asset Purchase Programe? Around 85% (28 of 33) said it would be before the second half of 2023. Already, the Fed has indicated that it would soon begin to sell its bonds.

It is predicted that the Euro zone’s economy will expand 4.0% next year, and 2.4% in 2019. This compares to 4.2% and 2.3% forecasted a month earlier.

The median forecast showed that Germany’s growth, which is the world’s biggest economy, has been downgraded from 4.4% to 4.0% in its October quarterly poll. France saw expected growth decline slightly to 3.7% from the 3.9% mark, while Italy was forecast at 4.2%.

Inflation forecasts for the next year were significantly improved in three of the largest economies within the bloc.

Euro zone unemployment rate for the year 2017 was 7.2%, slightly lower than 7.3% according to last poll. Next year’s prediction is 7.0%.

(For more stories, see the Reuters global economy poll: