Intesa Sanpaolo: European Central Bank – The monetary policy meeting on 10 March should have marked the change in pace of the monetary policy normalisation process.
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Weekly Economic Monitor – 04 March 2022
Intesa Sanpaolo – Research Department
The Russian invasion of Ukraine has upturned every plan: the reduction plan must now be put aside, in favour of a phase in which developments are carefully monitored. A change in the APP may be of use to react more flexibly to potential negative developments in the next few months.
United States – Powell backs a 25bp hike in March, but the Fed will have to run in the Spring . The Fed has confirmed that the monetary policy liftoff is coming in March, despite the outbreak of the Russia-Ukraine war, with Powell explicitly predicting a 25bpb rate hike at the next meeting. In the US, the Russian-Ukrainian conflict is likely to be felt mostly on inflation, with limited effects on growth. For this reason, although we adjust our forecast to follow Powell’s guidance and expect now a 25bp hike in March, we do not change the outlook for an overall 150bp hike in 2022.
The week’s market movers
In the euro area , the coming week will be dominated again by the evolution of the conflict in Ukraine. The ECB’s monetary policy meeting will have to postpone its plan to accelerate monetary normalisation, and perhaps switch to a more flexible and responsive stance in every direction. Macroeconomic data releases will include the initial estimates of January industrial activity in Germany and in Italy. While in Germany output could rise back up after dropping at the end of 2021, in Italy activity is expected to contract for the second consecutive month, affected both by the pandemic picture and by commodity price increases. In light of the national data already released, 4Q 2021 GDP growth in the Eurozone could be revised up.
In the United States , focus this week will be on the February CPI, that should drive inflation up further, by 0.7% m/m forecast for the headline index, and 0.5% m/m for the core component, with risks upside. New surprises on this front could be important in influencing the decisions taken by the FOMC at its March meeting. Surveys conducted among small businesses, and the Job Openings and Labor Turnover Survey, should point to further pressures on the labour market, and to rising trends for prices and wages. Consumer confidence in March is forecast to say at its lowest levels since 2011, due to inflation fears. The trade balance deficit is expected to have widened in January, -87.9 billion dollars.
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