Does Draghi have a case for pursuing further QE?

A constant supply of strong economic data has come out of the euro zone this month, just weeks after the European Central Bank President Mario Draghi launched of a much-anticipated bond-buying plan. So strong, in fact, that analysts are expecting that the ECB’s quantitative easing program might be over sooner than originally thought.

Draghi’s original plan was to maintain the asset purchase program until the end of September 2016, or until there is a “sustained adjustment in path of inflation”.

The central banker even expressed his surprise at last month’s Governing Council meeting when questioned on the potential of an early exit from QE, but investors are also suggesting he may not be faced with much of a choice.

Since the March launch of the 60 billion-euro-a-month program, loans to the private sector in the euro area, a gauge of economic health, have started growing again, ECB data released this week showed.

Retail sales in the region have seen a revival, as a dip in February was preceded by four successive monthly increases. Meanwhile German unemployment plummeted to a 24-year low and the euro zone ended four months of deflation in April, official data revealed on Thursday.

With unemployment falling and wages starting to pick up in some parts of the currency area, consumer spending will also likely rise during 2015.

This record jobless data from Europe’s largest economy could put the September 2016 QE deadline into question, but not until later in the year, analysts suggest.

“Compared to a year ago, the number of persons registered as unemployed has declined by 2.9 million people, indicating that the trend in labor market improvement remains firm,” said chief euro zone economist at Pantheon Economics, Claus Vistesen.

“The German unemployment rate is currently at its lowest level since 1991 raising the risk of wage pressures, which could also make life difficult for the ECB in terms of continuing QE, but this is unlikely to become a story for the market until the end of Q3 at the earliest.

CNBC

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.