ECB’s Wunsch Predicts Healthy Rebound But Bumpy Exit From Crisis

(Bloomberg) -- The euro-area economy is headed for a healthy rebound once coronavirus restrictions come to an end, but investors still need to brace for a bumpy exit from unprecedented stimulus, European Central Bank Governing Council member Pierre Wunsch said.

“A lot of the conditions are met for a sustained recovery when we get out of lockdown, and if it’s not enough then we’ll have to do more,” Wunsch said in an interview on Tuesday. “I hope that at some point we’re going to discuss an exit, because it will show that our policy is effective. But exit is never a piece of cake and it’s never completely smooth.”

The euro zone’s relative slowness on vaccinations has forced parts of the bloc including Belgium, where Wunsch heads the central bank, to tighten business and social restrictions to combat a third wave of infections. International Monetary Fund forecasts published Tuesday highlighted how the U.S. economy is powering ahead of the euro zone.

Wunsch said there’s “some room to take some bad news” before the ECB will have to lower its latest projections for the economy, which foresee 4% growth this year. Still, he acknowledged that if there is too much delay then officials may need to extend their monetary support.

The central bank most recently accelerated asset purchases under its 1.85 trillion-euro ($2.2 trillion) pandemic program, which is scheduled to last until the end of March 2022. The move was meant to contain a rise in government bond yields that originated in the U.S. and is threatening to derail the European recovery.

“If there would be at some point structural damage because of a lockdown lasting much longer in Europe than in other areas, then I guess at some point we could decide to go beyond March,” Wunsch said. “But conversely, if the news would be systematically good, at some point it will go with with some tightening of nominal rates and that’s something that’s even desirable.”

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