ECB Insight: de Guindos Suggests Exit from Crisis Slowed by Shortages
16 November 2021
By David Barwick – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos on Monday appeared to be claiming that shortages affecting economic activity were in effect hampering the euro area’s exit from the crisis.
In a somewhat gloomy speech at the 24th Euro Finance Week, de Guindos said that despite ongoing ‘positive momentum’, the third quarter had brought ‘headwinds from global and domestic supply bottlenecks and energy price increases.’
‘Material, equipment and skilled labour shortages are limiting production capacities in some sectors, slowing down the exit from the crisis’, he said. Lower household purchasing power due to higher energy prices is also holding back growth, he said.
To be sure, de Guindos also noted that elevated inflation rates could prove more persistent than expected, though, consistent with ECB President Christine Lagarde earlier in the day, he saw no signs of second-round effects.
What to make of the claim that the exit from the crisis is being extended, given the importance of the crisis phase for setting monetary policy? In making that assertion, de Guindos went further than Lagarde, who hours previously had said merely that ‘shortages of materials, equipment and labour are weighing on manufacturing production, weakening the near-term outlook.’
Lagarde gave no reason at her European Parliament appearance to think that the pandemic emergency purchase programme (PEPP), whose end she has now repeatedly indicated would come next March, stands a significant chance of getting a reprieve – which, absent truly compelling developments, would make her haste in pre-announcing the PEPP’s demise look quite the blunder.
As such, we are inclined to think that de Guindos at the very most was revealing a potentially serious but personal reservation. But even that is not necessarily the case.
In an interview three and a half months ago, de Guindos said that the PEPP should end ‘when the emergency is over and its dampening effect on inflation disappears’, and that when the emergency would be over ‘is a medical question first and foremost’ that ‘depends on whether the vaccination campaigns are successful in combating the delta variant and whether new, more resistant variants appear.’
While one can certainly quibble over details, serious opposition from de Guindos to ending the PEPP might be somewhat inconsistent with his earlier position. Moreover, he knows full well that the end of PEPP does not mean the end of asset purchases anyway.
Overall, we would hence be reluctant to attach much significance to de Guindos’ comment on Monday, given which we find the remark a wee bit careless, as the ECB would ideally avoid feeding speculation, at least of the undue variety.
Should top monetary policymakers reiterate the idea of a slower-than-expected exit from the crisis, we will gladly revisit our interpretation of the Vice President’s words. But we don’t anticipate such a need, and expect the PEPP to end next March.