European Central Bank governing Council member John Nott said on Wednesday that the euro zone economy is expected to recover strongly in the second half of the year, which could allow the ECB to phase out its pandemic emergency asset acquisition program (PEPP) in the third quarter.
Mr. Nott said in an interview that the spread of the novel coronavirus pandemic, the slow blockade of epidemic prevention and the slow action of vaccination may all put pressure on the prospects for the coming months, but a series of factors suggest that once the pandemic is brought under control, a surprising situation is likely to occur in the second half of the year. "if the economy forecasts growth according to our benchmark, we will see better inflation and growth from the second half of the year," Nott said. In that case, it is also clear to me that from the third quarter, we will be able to begin to phase out emergency pandemic asset purchases and end these activities as expected in March 2022. " The ECB stepped up bond purchases last month in its 1.85 trillion euro pandemic emergency asset acquisition programme, (PEPP), fearing that higher yields, mainly the spillover effects of a sell-off in US Treasuries, could derail the ultimate recovery in the eurozone. Since then, yields have leveled off. Inflation-adjusted yields are back near the lows reached at the start of the year, which Mr Nott says is acceptable. "the rise in nominal yields is driven by better inflation and growth prospects, which in my view is completely benign," Nott said. If real interest rates remain roughly unchanged, this means that the rise in famous interest rates is entirely due to rising inflation expectations, which is acceptable. " "We have every reason to expect a strong economic recovery in the second half of this year, consumers are eager to spend their accumulated savings, more fiscal stimulus measures are imminent, and the external environment has improved significantly," Nott said. " Nott said that the economic deterioration is only concentrated in the short term, but the outlook has not changed much in the short term. As predicted by the ECB, the rebound in the economy is likely to trigger a surge in inflation, but given the large amount of idle labour market, the surge in inflation is likely to be temporary and price growth will remain below target for several years. Nott is one of the more conservative members of the ECB's governing council. He also played down concerns about inadequate financial support, arguing that the government's response was better than its initial performance. Mr Nott also points out that even if the ECB can start phasing out its emergency measures this year, inflation is still too low for the central bank to adjust other tools. "the inflation outlook does not give us reason to tighten conventional tools, such as forward guidance on interest rates or asset purchase programmes, and withdrawing emergency measures does not mean withdrawing from the easy monetary stance." Judging from Nott's speech, if the European Central Bank curtails its emergency bond-buying program in the third quarter, it may raise market expectations that global central banks, including the Federal Reserve, will scale back their bond-buying programs, which is bad for gold prices in the medium to long term. Investors need to be vigilant; but in the short term, they need to focus on the minutes of the Fed meeting in the early hours of Thursday morning domestic time. On Wednesday, spot gold weakened slightly in Asia and Europe, hitting as low as $1730.75, with domestic time 2015. Spot gold is now trading at $1736.32 / oz, while the main contract for COMEX gold futures is now at $1738.4 / oz.
