| Economists backtracking from previous forecasts – December bfinance rates and FX consensus |
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| 06/12/2004 | |
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The next ECB's hike could be farther than what was previously expected, according to the pool of economists surveyed by bfinance. The previous bfinance survey pointed to a hike within the next 6 months that would have left the ECB repo rate at 2.25 bp at the end of April 2005. A substantial number of economists now believe that this will only happen later on in 2005, or even only in 2006. Stéphane Déo, an economist with UBS, thinks that the ECB will leave its rates unchanged as far as the end of 2006. "For the sixth consecutive year, the Eurozone's growth rate in 2006 should be below 2%. Nevertheless, even based on our prudent estimates, the output gap is unlikely to diminish. The inflation is also likely to remain moderate since workers have only a limited bargaining power", he argues. And for the first time this year, one bank, IXIS CIB, forecasts that the ECB will give up a quarter point on its repo rate. "The appreciation of the euro as well as ever stronger indication about a slowdown of the activity lead us to anticipate a quarter point diminution of the repo rate over the next six months", explains Laure Maillard, an economist at Ixis CIB. According to Stéphane Déo, the evolution of the dollar against the euro is not neutral, but is unlikely to affect the ECB monetary policy. US and UK If the ECB short rates are likely to remain at their current level for a while, forecasts for the Fed funds are revisited on the upside, respectively at 2.50% and 3% over a 3- and 6-month horizon, against 2% and 2.50% in the November consensus. "We expect core inflation to creep up over the coming months. As much as 50 bp of tightening would be required by year-end 2005 simply to keep the real interest rate stable. Given the fundamentals of the US economy, we estimate the neutral real rate at about 3%, so there is considerable scope for the Fed to tighten policy from current levels", explains Christoph Balz, a Commerzbank economist. Economists are still on hold with respect to their forecasts of the next Bank of England's move, which is widely expected not to touch its base rate at least over the next six months, as it was the case for the previous consensus. Economists at Lehman Brothers are straightforward as it gets with this regard: "We judge that rates have peaked at 4.75%", they say. But Raymond Van der Putten at BNP Paribas does not take such as clear stance. "The future path of interest rates is rather uncertain", he says, observing that Mervyn King of the BoE underlined once more the inflationary risks as the economy is operating close to potential at the last Treasury Committee meeting. Long rates and FX Forecasts of US long rates did not budge from last month's and now stand at 4.47% and a 4.62% over 3 and 6 months, "Our view that in terms of the fundamentals the US 10-year yield is too low is based on a number of approaches, all of which lead to a similar conclusion", says Christoph Balz. For instance, according to the Commerzbank's yield model, the 10-year yield should already reach 4.6%. On the other hand, the anticipated rate for Eurozone long rates should be less: the 6-month average goes from 4.33% for the last survey to 4.20% for the current one. "We think that the long-awaited break up of the American and European yield curves will gather speed in the coming years", says Stéphane Déo. All the market analysts surveyed by bfinance have revisited their euro / dollar forecasts, as record-breaking became the norm for the euro in November. In turn, the consensus average now stands at 1.32 at the end of May 2005, against 1.26 the previous month. Natexis Banques Populaires is still the bank that bets on the lowest level for the euro, but had to adjust its forecast on the upside so as not to be left too far behind the pack. And alarm bells now begins to be heard: "If the fall of the dollar is not stopped, we are maybe on the eve of an unprecedented financial crisis. That's why we think that the US authorities are aware of the threats and that they will interfere with this movement in the coming weeks, as they already did in similar circumstances since the 80s" warns Marc Touati, Natexis Banques Populaires' senior economist. F.P. and J.L. |
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Articles of the same Serie : Consensus
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