Members of the governing board of the European Central Bank have expressed concern that the slow pace of Covid-19 vaccinations in the eurozone could delay the union’s economic recovery, according to the minutes of their last meeting.
According to a summary of the discussion held on March 11, members of the governing council highlighted the uncertainty about the short-term growth prospects of the eurozone due to the coronavirus pandemic.
“There was mention of the slow pace of vaccination compared to other parts of the world,” said the minutes, released Thursday. Council members wondered if the restrictions associated with the pandemic would be lifted in the second quarter, and expected that “the decline in activity may continue in the second quarter and beyond.”
At the same time, they felt that the risks to the euro area’s medium-term growth prospects were “more balanced” thanks to better outlook for the global economy, fueled by massive fiscal stimulus and progress in vaccination campaigns.
Carsten Brzeski, head of macroeconomics at ING, said the minutes of the meeting “indicate that there must have been a lively debate. … … with some members of the ECB pointing to more positive factors of growth, while others – to more negative factors. “
The minutes confirmed that the US stimulus package, which was not included in the ECB’s March forecast, represents “upside risk” – that is, additional potential impetus – for the outlook for the global economy and the eurozone economy. However, it was noted that the impact of President Joe Biden’s plan and its implications for the euro-dollar exchange rate “are difficult to quantify.”
Frédéric Ducroze, strategist at Pictet Wealth Management, said the protocol also points to “disagreement in the board of governors over the risks associated with higher bond yields and the appropriate response function.”
Isabelle Schnabel, a member of the ECB’s executive board, said during the meeting that the rise in sovereign yields “must be clear and constant” to significantly affect broader funding conditions.
Brzeski said the protocol assumes that “as long as real rates remain stable, everything is fine.” But even higher real returns – given inflationary expectations – “were not necessarily a cause for concern and should not cause political interference if they reflect higher growth prospects rather than higher real term premiums,” the minutes said.
Some concerns were also expressed that the “true situation in the business and household sectors” in the euro area would be disclosed after government support schemes, in particular business insolvency and their impact on balance sheets, were phased out.
“There is still some risk that the unemployment rate will be higher than expected,” if jobs cannot be protected after job retention schemes expire, he added.