The fast-spreading Delta variant of Covid-19 is likely to have only a limited impact on the eurozone economy, which remains on track for robust growth this year and next, believes Philip Lane, Chief Economist of the European Central Bank.
With the delta spreading around the world, shares sold off last week over fears the more contagious variant would thwart the global recovery from the pandemic and force governments to reintroduce debilitating lockdowns.
But Mr Lane was more optimistic, saying that an advanced vaccination campaign and strengthened public health measures are making Europe the exception as other countries face new pressures on their health systems due to the upsurge in infections.
“The fact that (Delta) did not require more extensive measures and that localized measures were reasonably effective indicates that, in terms of the overall economy, the impact has so far been quite limited,” said Mr. Lane in an interview.
About two-thirds of eurozone residents have already received at least one vaccine, and most of the 19 countries in the currency bloc maintain an array of public health measures, including mask warrants and social distancing rules.
This resilience, coupled with a better-than-expected second quarter, means growth remains broadly on track seen in June when the ECB released the latest economic projections, added Lane.
Then the ECB predicted 4.6% growth this year and 4.7% expansion in 2022.
“I would say that overall we are not too far away from what we expected in June for the full year,” Lane said. âIt’s a reasonably well balanced picture. “
But the economist also warned of growing headwinds that are likely to restrain the expansion after a robust second quarter.
“It looks like the bottlenecks are going to be more persistent than expected,” he said.
âThere is also a certain moderation in the global economy, which is natural. And the Delta variant, even if it has a more limited impact than the previous waves, remains a headwind. “
With the economy rebounding rapidly, some policymakers have argued for a discussion on how the ECB could end its â¬ 1.85 billion pandemic emergency purchase program (PEPP).
Mr Lane rejected those calls, however, saying that with the stimulus package slated until the end of March at the earliest, it was too early to start this discussion now.
âWhatever the end date of the PEPP, it is not the end of the role of the ECB in terms of QE. That’s why we don’t need a huge head start to think about it.
“We already know what we are doing until March, which maintains favorable financing conditions, so we have time this fall to think about what to do next,” he added.
Instead, the main task for the ECB at its September 9 meeting will be to decide the pace of bond purchases over the next quarter.
Mr Lane would not be drawn to the move, but said any move would be gradual, as policymakers have already agreed to provide “favorable financing terms” until March, signaling that purchases will remain high in historical terms. .
âAny adjustment that we make during the pandemic period is part of the same philosophy: to maintain favorable financing conditions,â he said.
âIt is contingent on the deeper commitment, which is favorable financing terms.
He said the relatively high inflation readings in recent months had not changed his view that the price spike is temporary because wage growth remains subdued.