The newest set of staff forecasts will be closely eyed given that March projections are now so desperately out of date. In April the ECB set out three scenarios, GDP declining by 5%, 8% and 12% in 2020, depending on the severity of the coronavirus crisis.
Google mobility data shows that some eurozone countries have already returned to around 80% of their January activity levels, whilst others show just a 60% return to normality. Soft indicators point to a low point in April but with activity rebounding in May. Beyond Q2 GDP forecasts will involve a large element of guess work, depending largely on the course that the virus takes and the effectiveness of the containment measures.
April’s scenario analysts lacked any inflation forecasts and March’s are as good as irrelevant given the complete change in circumstances. Falling energy prices, rising unemployment and business closures point to falling inflation. That said, some ECB council members believe that supply chain disruptions could offer some support to prices and inflation.
The ECB will have plenty more to discuss, namely the PEPP and the German constitutional court ruling. The ECB are expected to explore ways to continue its public sector purchase programme without including the Bundesbank.
As for the PEPP, the ECB are expected to decide on a significant increase to the programme which runs out in October. This programme keeps the Bundesbank on board despite the German court ruling.
Any hints of negative rates or disappointment surrounding PEPP, such as no action, could drag the EUR/USD lower back towards €1.11, whilst the Dax could also underperform.