ECB Brief: Lane Sees Euro Area Economy at an Inflection Point; Where’s the ECB’s?

29 April 2021

By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Philip Lane on Thursday characterised the situation of the euro area economy as an inflection point but offered no hint as to whether he drew from that the conclusion that monetary policy must also be approaching one.

In the interview with Swedish television channel Dagens Industri TV, Lane, who is chief economist, seemed to be striving for a slight course correction with respect to tone in the context of a tenaciously dovish ECB whose refusal to countenance better times seems increasingly at odds with the economic outlook on the ground.

Without knowing whether Lane knew at taping time that this morning’s European Commission economic sentiment indicator would crush consensus forecasts for a slight rise by soaring on a broad base, all while showing a renewed rise in inflation expectations, his comments were well timed.

‘We are very much at an inflection point’, he said, the prelude to a paragraph largely devoid of the studied gloominess practiced by a large swathe of the Governing Council, including most notably ECB President Christine Lagarde.

Instead, Lane held out the promise of a lifting of restrictions on services – a sector that contributed strongly to the Commission sentiment indicator’s surge – and thus of ‘a good recovery throughout the rest of this year’, though he caught himself at the end and added that this ‘does not mean there’s a full recovery.’

Virus mutations? Stop-and-start vaccination campaigns? Corporate insolvencies? Perhaps he was never asked, but the absence of a corresponding question would not be grounds for many of Lane’s colleagues to pass up the chance to dwell on downside risks. Lane did not so much as mention these.

Through yet a third paragraph on the economic situation, he gamely stuck to his guns, predicting that ‘the economy will be growing in May and in June, and even more strongly in the third quarter between July and September, with that momentum continuing into the autumn.’

What Lane also left out, however, was any hint as to what this means for his institution’s monetary policy. Even when analysing the ECB’s crisis management, he framed his response in terms of three phases – stabilising markets, protecting credit supply and ensuring ‘that long-term rates are also low enough to support a recovery and support inflation momentum’ – without making any suggestion as to when an end might come.

Lane steered equally clear of feeding the notion that there might not be an end, or even that, to use the word of Lagarde and others, it was ‘premature’ to contemplate such things. But as the chief architect of the ECB’s response to the pandemic-induced crisis, his silence on such a subject on the heels of an optimistic assessment of the recovery may be a subtle sign that, for better or worse, the ECB is approaching its own inflection point.