ECB’s Wunsch: Accumulated Savings Could Boost Private Consumption for Five Years

7 April, 2021

By David Barwick – FRANKFURT (Econostream) – The accumulation of savings during the pandemic could produce an increase in private consumption that lasts as long as five years, European Central Bank Governing Council member Pierre Wunsch said Wednesday.

In an interview with Reuters, Wunsch, who heads the National Bank of Belgium, said that ‘[w]hat has been saved in 2020 and in the beginning of 2021 would be enough to finance growth in private consumption above the level of 2019 for three, four or five years.’

‘In our projections we don’t have a lot of pent-up demand, I would be more optimistic on that’, he added.

Wunsch indicated satisfaction on the ECB’s part with the current level of favourability of financing conditions, saying that ‘[w]e’re fine with financing conditions as they are’.

‘We’re going to use more volumes if we see tightening and less volume if we see that financing conditions stabilise without us buying that much’, he said with respect to the ECB’s asset purchases.

However, he suggested that market intervention to override fundamentals would not be indefinite, but rather ‘so many months or a year’.

‘At some point you’re going back to the fundamentals and if the economy is strongly improving it will have to mean some tightening at some point and if the economy is clearly deteriorating doing less doesn’t work’, but rather extending the pandemic emergency asset programme (PEPP) beyond next March if needed, the agency reported him as saying.

Wunsch showed a willingness to countenance above-target inflation, saying, ‘We should express some tolerance to overshooting to make sure our symmetric objective is well understood.’

‘But it’s difficult to strongly commit to that’, he said. ‘So, I would be somewhat reluctant to go into extreme forms of commitment to a make-up strategy, that we will catch up to whatever inflation we could not reach in the past.’

If the ECB’s high level of monetary accommodation ceased to be sufficiently effective to justify the unintended consequences, then the ECB would have to act accordingly, he said.

‘If you want to take into account some trade-offs, the marginal cost of your policies is fixed and the marginal benefit is lower, it means doing less at some point,’ he said.