Several ECB politicians doubt the expected recovery in growth: sources

FRANKFURT (Reuters) – Several European Central Bank policymakers say the bank's economic outlook is too optimistic, weak growth in China, and trade tensions persist, four sources said.

At last week's monetary policy meeting, a "significant minority" of rate-setting officials worried about the long-overdue recovery expected in the second half of the year and some even questioned the accuracy of the models. the ECB, given their long tradition of downward revisions. , said the sources.

With the ECB using these projections as a key element of the political decision, further cuts in growth and inflation forecasts would increase the chances that the bank's first post-crisis rate, now observed next year, will be further delayed. .

A spokesman for the ECB declined to comment.

Until now, the central bank has maintained that many of the factors holding back growth were temporary. The economy is expected to rebound in the second half, after the decline in exports and the loss of confidence that almost drove Germany into recession at the end of last year.

ECB President Mario Draghi said over the weekend that there were signs of diminishing these factors even though political uncertainty was great.

However, some members of the Board, who were not so confident, said the obstacles to growth were far from being temporary. There was therefore no reason to forecast a significant rebound, the sources said.

Although the large German automotive sector has been subject to a one-time adjustment to new methods of controlling emissions, more permanent factors could include changing fuel consumption patterns, diesel abandonment and weak Chinese demand, some governors said, according to some badysts. sources.

LOW GROWTH, COMMERCIAL WARS

Policymakers added that the weak growth in global trade also seemed to be more permanent, that trade wars are now the norm rather than the exception and that even though Chinese growth seems to be stabilizing, the Beijing demand should not increase.

Some Governors have gone so far as to say that the ECB's forecasting methodology may need to be revisited, as the forecasts are still too optimistic and are regularly cut from one quarter to the next, the same sources said. sources.

The ECB now sees growth of 1.1% in 2019 in 2019, but is expected to reach 1.7% just three months ago.

While others are also predisposed to forecasting errors, the US Federal Reserve does not publish a single projection, even though each governor makes his forecasts public. And while Fed governors have also recently turned to growth, their inflation expectations have been relatively strong.

Some ECB policymakers have estimated that the bank's forecasts may have an inherent bias, as they continue to show rising inflation, in line with the ECB's target and a return to growth.

The sources added that ECB President Mario Draghi seemed willing to discuss these concerns, but did not want to deepen his knowledge of the forecasting methodology just one month before the end of his term.

Others told colleagues at the political meeting that the main reason for these missing forecasts was simply a misconception of the slowdown in the labor market, sources said.

The euro area has created around 10 million jobs since the worst moments of its debt crisis and more people are working today than ever before.

However, inflation is not progressing as expected by a record employment rate, suggesting that the labor market is more flexible than in the past and that the natural unemployment rate has declined.