(Bloomberg) -- European Central Bank chief economist Philip Lane cautioned against reading too much into recent economic data and warned that a global resurgence of coronavirus cases will weigh on consumers and businesses for some time.
It would be “unwise” to draw strong conclusions from the euro area's less-bad-than-expected second-quarter performance, which should be jointly assessed with the three months through September, Lane said in a blog post published on the ECB's website. He also said a rise in coronavirus infections in some European regions as well as globally is dampening consumer spending and business investment.
“These factors help to explain why the economy is expected to take a significant amount of time to recover fully from the pandemic shock, and why significant fiscal and monetary policy support is necessary,” he said.
While euro-area GDP shrank by a record 12.1% in the second quarter, taking output back to levels not seen since early 2005, the economy rebounded faster than expected in May and June as lockdowns ended. The ECB had anticipated a 13% slump.
Lane noted that may mean the third-quarter pickup in activity will be less steep than hoped. Purchasing managers indexes for July show manufacturers cutting jobs as continued weak demand forces them to take aggressive action on costs.
“The level of economic slack remains extraordinarily high and the outlook highly uncertain,” Lane said.
The ECB has implemented an unprecedented 1.35 trillion-euro ($1.6 trillion) bond-buying plan to lower borrowing costs during the crisis. It stuck to that stance at its latest meeting in July, while pledging to do more if needed.
Lane said while the program's flexibility can address any risks to market stability, its overall size will be determined by the inflation outlook. That's in line with a recent comment from Greek policy maker Yannis Stournaras, who said in an interview that the end of emergency purchases will depend mostly on consumer-price developments -- effectively setting a high bar for such a move, given the weak trend.
Most economists surveyed before the ECB's most-recent policy meeting expected the pandemic purchases to be increased later this year. But some members of the institution's Governing Council have also sent more cautious signals about how much bond buying will be needed. Policy makers didn't agree on the issue at their teleconference last month, according to people familiar with the discussions.
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