The European Central Bank will this week face more questions about an increasingly challenging outlook only a month after it unleashed fresh stimulus to bolster the euro zone economy.
Policymakers boosted emergency bond buys by 500 billion euros 607 bln in December. But resurgent COVID19 cases, new restrictions on activity in countries including Germany and France and the slow rollout of vaccines has cast doubt over the pace of the regions recovery.
At this point in time, the ECB still finds itself a little bit with its back against the wall, said Althea Spinozzi, fixed income strategist at Saxo Bank Group. Theres no alternative but to keep supporting the economy until an end to downside risks are clear.
Here are five key questions for markets.
1. What does a slow vaccine rollout and surging COVID19 cases mean for the economy?
ECB chief Christine Lagarde is sticking to forecasts for an economic rebound this year so long as lockdown measures to curb the pandemic are lifted by endMarch and vaccines distributed.
She said in a Reuters interview last week that the latest ECB forecasts incorporate some impact from restrictions. The next forecasts are due in March. Real GDP should return to precrisis levels by mid2022, minutes from the ECBs December meeting show.
Still, lockdown extensions have dashed hopes of an early rebound and economists are cutting their forecasts. Bank of America now estimates a 2021 growth expansion of 2.9, a full percentage point below previous…