There are signs that expectations for economic growth this year in Europe might rise, and this would have corresponding implications for predictions of inflation, European Central Bank Governing Council member Ewald Nowotny said Friday.
Briefing the press on the margins of the Spring meetings of the IMF and World Bank, Nowotny, who heads the Austrian National Bank, said there are “certain indications that we might get an upward revision for economic growth in Europe.”
Growth in Germany this year “might be as high as 2%,” he said, and “maybe also in Austria.”
“And that of course would also” impact inflation, an effect which “is something that we would like to have a closer look at.”
Nowotny made the comments in arguing that the ECB would be well advised to wait for these “elements of a self-correcting nature,” which would be clearer in June, rather than make any policy move in May.
“In June we will have a new forecast for the rest of the year, we will have the data for the first five months, so I think that therefore this is something that gives us a full picture,” he said.
Asked explicitly about the timing of a possible policy move by the ECB, Nowotny replied, “My personal expectation is that it will be in the first meeting of June of this year when we have to discuss this again in detail because then we will get the new data relevant” to a decision.
The ECB already has “started with a number of preparations,” he said. “My personal preference is for measures that are as close to the markets and to the real economy as possible … my personal preference would be to have a strong involvement with regard to asset-backed securities.”
Reinvigorating the ABS market, he said, “makes sense not only with regard to inflation rate policy,” but also from a longer-term point of view. Although this requires “a lot of preparation” and the market now is rather small, “if the ECB is prepared to take a more active role in this market,” this could prove a “strong incentive also for the private sector.”
Nowotny appeared to question the value of another possible measure involving an interest rate cut leaving the width of the so-called corridor unchanged from its current magnitude. “This would the mean that we would get into negative territory,” he said, saying he was “not sure if this would have very strong effects on the economy” unless it were “part of a more general approach.”
In this case, he added, “then I think it might have a more substantial” impact.
Nowotny observed the “two messages” of the ECB’s last monthly press conference, one being “that forward guidance is in place which means that we will keep interest rates at the same level or at a lower level as long as we have no changes in inflation expectations.
“And the second part is that we are considering both conventional and unconventional measures. And this was unanimously agreed at the Governing Council.”
There was, he said, “no discussion about giving priority” to any particular instrument.