ECB will probably have to resume quantitative easing in 2020 – Natixis

A resumption of quantitative easing in 2020 in the Eurozone, is a hypothesis that should be taken seriously, considering that growth could slow significantly, according to analysts at Natixis.

Key Quotes: 

“That factors that are shoring up the euro-zone economy in 2019 (fiscal deficits, accelerating wages and declining inflation due to the fall in the oil price) will very probably no longer bolster the economy in 2020. We can therefore seriously consider the possibility that euro-zone growth will be quite good in 2019 and poor in 2020.”

“The economic policy reaction to weak growth in 2020 could then only be a markedly more expansionary fiscal policy, and – which is our point here – which the ECB would have to accompany with additional public debt monetisation to prevent long-term interest rates from rising.”

“Growth is likely to be sluggish in the euro zone in 2020 (more restrictive fiscal policy, rising oil price, deteriorating cost competitiveness), leading to a more expansionary fiscal policy (since interest rates can no longer be cut), which will require a resumption of quantitative easing to prevent long-term interest rates from rising.”

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