No major changes from the ECB today

As widely expected, there were no major changes from the ECB today. However, the ECB’s decision is fully understandable.

Taken at face value, the Euro Area’s economy has picked up momentum in recent months while headline inflation has risen steadily over the past year. However, the improvements in the economic backdrop should be put in context. The push up in inflation has been largely driven by energy prices, and the core inflation rate remains muted. 

Moreover, over the next few months political risks will come to the fore and markets will have to contend with elections in key Eurozone countries, beginning with the Dutch elections next week. The outcome of the French elections in May in particular will have significant bearing on the viability of the ‘European project’ in its current form.

Clearly the risk that political events could undermine business and consumer sentiment, and dampen growth in the months ahead is high. Overall, there is little basis for a hawkish turn at this point or in the near future.

Abi Oladimeji
Chief Investment Officer

This commentary first appeared in:

Portfolio Adviser (9th March 2017)

Daily Express (9th March 2017)

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