Reactie ECB: Geen toezegging, geen richtlijnen, niets

Hugo Le Damany en François Cabau, econoom en senior eurozone-econoom bij AXA Investment Managers, reageren op de laatste vergadering van de Raad van Bestuur van de ECB:

As widely expected, the Governing Council maintained the status-quo on policy rates. Communication wise, we had left the ECB on a surprisingly defensive footing last June. The tone of yesterday's statement and the speech is slightly more dovish on substance, but at the same time very non-committal on the future direction.

The ECB seems to be in two minds. They want to trust signals from surveys that their disinflation scenario is unfolding, but hard data is not corroborating yet, and “domestic price pressure is still high, services inflation is elevated, and headline inflation is likely to remain above the target well into next year".

They are seeing some signs of improvement in June flows, with "most measures of underlying inflation were either stable or edge down", while medium term indicators of wages (the main driver of services inflation) seem to provide some confidence, i.e, Ms. Lagarde mentioned the results of the corporate telephone surveys (SAFE) for 2025 and 2026, or the Indeed wages indicators. On WPP (wages-productivity-profits) Ms. Lagarde highlighted some preliminary improvement with productivity being marginally improved while unit profits turned negative in Q1. We think only wages will show substantial steps in the right direction this year – we are unsure about productivity and margins – but that is the most important component.

Last but not least, Ms. Lagarde recognised that the +0.4% for Q2 GDP growth pencilled for the June forecast would not be achieved as they are now expecting something lower than in Q1 (+0.3%). She also emphasised the balance of risk on the real economy was negative.

September meeting

Yet, Ms. Lagarde was adamant the ECB has not committed to any trajectory and qualified the outcome of the September meeting as “wide open”. We were hoping that a natural conclusion from their relatively benign analysis of the macro developments would be to open the door more explicitly than she did in June to another cut in September. There was not even a crack. We continue to believe the ECB will implement another rate cut in September, but it may be a closer call than we initially thought given Ms. Lagarde’s tight-lipped performance this week.

In our baseline scenario, there might not be enough proof of deceleration in services inflation during the summer (still around 4% until August). This can however, be enough for the ECB as they pencil in 2.7% for core inflation in Q3, the same level than in Q2. The level of confidence can also rise if their seasonally adjusted measurement points to another deceleration on a 3-month annualised basis, as it did in June. On compensation per employee, the ECB is forecasting a stabilisation at around 5.1% after 5%. It lowers the bar to be negatively surprised. So, this figure could be enough as they seem to trust different forward-looking indicators (mentioned above), but the conversation at the Governing Council promises to be lively.

On the fiscal topic, it is also interesting that Ms. Lagarde was careful to point out that they have added a sentence in the official statement, "calling countries for EU member states to strengthen fiscal sustainability and the Eurogroup’s statement on the fiscal stance for the euro area in 2025". France has not been singled out and it may be that this message is directed to all countries under Excessive Deficit Procedure, but her insistence on the topic was notable, as she reiterated the point during the Q&A.

Notes to editors

All data sourced by AXA IM as at 18 July 2024

Hugo Le DamanyFrançois Cabau