Bollettino economico BCE, n. 4 - 2020

At its monetary policy meeting on 4 June, the Governing Council decided to increase the envelope and extend the horizon for the pandemic emergency purchase programme (PEPP) and to reinvest its maturing principal payments, while continuing with the asset purchase programme (APP) and its reinvestments and keeping the key ECB interest rates unchanged.

Incoming information confirms that the euro area economy is experiencing an unprecedented contraction. There has been an abrupt drop in economic activity as a result of the coronavirus (COVID-19) pandemic and the measures to contain it. Severe job and income losses and exceptionally elevated uncertainty about the economic outlook have led to a significant fall in consumer spending and investment. While survey data and real-time indicators for economic activity have shown some signs of a bottoming-out alongside the gradual easing of the containment measures, the improvement has so far been tepid compared with the speed at which the indicators plummeted in the preceding two months. The June 2020 Eurosystem staff macroeconomic projections for the euro area see growth declining at an unprecedented pace in the second quarter of this year, before rebounding again in the second half, crucially helped by the sizeable support from fiscal and monetary policy. Nonetheless, the projections entail a substantial downward revision to both the level of economic activity and the inflation outlook over the whole projection horizon, though the baseline is surrounded by an exceptional degree of uncertainty. While headline inflation is suppressed by lower energy prices, price pressures are expected to remain subdued on account of the sharp decline in real GDP and the associated significant increase in economic slack. Against this background, the Governing Council decided on a set of monetary policy measures to support the economy during its gradual reopening and to safeguard medium-term price stability.

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