Macro weekly draghi 29 may 2015

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Macro Weekly Draghi's lap of honour

Group Economics

Han de Jong +31 20 628 4201

29 May 2015 ECB President will undoubtedly express satisfaction with how things are going in the eurozone and claim success for his programme of quantitative easing. And fair play to him! While I still think that the programme was not really necessary as the economy was already improving, I suppose a bit of additional fuel to the fire cannot harm. In any case, the eurozone economy is on the right track. Meanwhile, Fed chair Yellen has, so far, failed to push market expectations for official interest rates by the end of this year and next up, despite her efforts to explain that the first rate hike is close. Given how assertive she, and some of her colleagues, have been, one must assume that the Fed will, indeed, raise rates before too long.

Most eurozone data was positive

is actually a better indicator for economic activity. Its growth

The eurozone economy has been improving since the second

accelerated to 10.5%. That is high and M1 has been a reliable

half of last year and that trend is continuing. Several economic

leading indicator for overall growth of the eurozone economy.

indicators released during the last couple of days confirm this.

So that is promising. Bank lending data contained in the

The European Commission's comprehensive index for overall

monetary statistics was less strong, but it is clear that the

confidence, its so called Economic Sentiment measure was

credit cycle has made a decisive turn for the better.

stable in May, but clearly above its long-term average. The index was actually fractionally higher in March, but, apart from

Deflation fears also seem to ease further as Italian and

the March reading, one has to go back to early 2011 to find

Spanish inflation came in ahead of expectations. Spain's HICP

stronger sentiment. A similar message is borne out by the

inflation amounted to -0.3% yoy in May, but that is up from -

index of producer confidence in the Netherlands. Consumer

1.5% in January. Italy's headline inflation ticked up to 0.2% yoy

confidence in Germany is even more impressive, at least

after the number had been negative in three of the previous

according to the Gfk gauge. This measure, labelled for June,

five months.

rose to the highest level I can find in my Bloomberg system

Draghi will do a lap of honour

where history goes back to 2005. Admitted, other measures of German consumer confidence are less jubilant.

ECB president Mario Draghi will most likely claim credit for all this when he meets the press in a few days' time following the ECB's upcoming policy meeting. While I would want to

Eurozone: M1 growth and GDP

begrudge him success, I think the economy was already on the 6

16 14 12 10 8 6 4 2 0

4 2 0 -2

purchasing programme. And I also think, and have argued in the past, that deflation risks are smaller than many believe. Frankly, that is not really all that relevant. The main point is that the economy is improving. Given where unemployment is and where inflation is relative to the ECB's target, there is no

-4

doubt we need the economy to continue to grow and the ECB

-6

will certainly not consider ending its asset purchasing

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 M1 (lhs, 12m moving forward)

mend long before the ECB started its large-scale asset

programme any time soon.

GDP (rhs)

Greek saga approaching the end game Source: Bloomberg

Eurozone monetary statistics for April were also better than expected. M3 growth accelerated to 5.3%, from 4.9% in March. This was the strongest since 2008. The narrow aggregate M1

As an outsider, I have no idea what's going on between Greek authorities and their partners discussing the financial situation of Greece. Nobody seems to know how much cash the Greeks have, but the end of it must be coming within sight. One must therefore assume that the end game is getting close. Mental


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