ECB Future Rates Decision and its impact on Ireland

[The_Banker]

Now that Germany and France have 'officially' come out of recession will we see the European Central Bank raising interest rates in the not too distant future?
If they do will this be another hammer blow to the Irish economy as we seem to be sinking deeper into recession rather than struggling out of it?

As yet there are no green shoots to speak about in Ireland and we seem to have the sickest economy in the Eurozone.


http://www.rte.ie/business/2009/0813/economy.html

I would appreciate the thoughts of those with good economic insight!

 

[DublinMo]

Now that Germany and France have 'officially' come out of recession will we see the European Central Bank raising interest rates in the not too distant future?
If they do will this be another hammer blow to the Irish economy as we seem to be sinking deeper into recession rather than struggling out of it?

As yet there are no green shoots to speak about in Ireland and we seem to have the sickest economy in the Eurozone.


http://www.rte.ie/business/2009/0813/economy.html

I would appreciate the thoughts of those with good economic insight!

i wrongly started this on the mortgage forum(its been chopped)...a few insightful replies that suggested that the French/German revival is based on the strict guidelines for coming out of recession (e 2 quarters of growth or something) that doesnt necessarily mean they are out of the woods...but still obviously better off then us (surprise surprise)

in theory the rates will increase because of this eventually if it continues but the million dollar question is "how long will it take".....

on the flipside, does this mean we should see a knock on effect from their alleged revival? i know they dont rely on credit as much as we do though...

BOI are predicting double figure growth from 2010-2015...my commercial manager fed me this last week...its whether its true or not is the problem...they based their figures on 2004 which i find a bit on the ambitious side...they should have based it on 2001/2002 in my opinion...

 

[NorfBank]

BOI are predicting double figure growth from 2010-2015

I love this crystal ball gazing 6 years into the future yet they could not see the sub prime crisis from a distance of about 6 months.

My two cents is we live in a boom bust society and no matter how many experts predict periods of growth or contraction, in reality they are just educated guesses.

Who's to say another "sub prime type" crisis isn't around the corner or an epidemic of greater proportions than the swine flu or a war or some other global issue that will bring us all back into recession? Just because it looks like Germany and France are coming out of recession now doesn't mean everything is back on track for a sustained recovery.

 

[DublinMo]

I love this crystal ball gazing 6 years into the future yet they could not see the sub prime crisis from a distance of about 6 months.

My two cents is we live in a boom bust society and no matter how many experts predict periods of growth or contraction, in reality they are just educated guesses.

Who's to say another "sub prime type" crisis isn't around the corner or an epidemic of greater proportions than the swine flu or a war or some other global issue that will bring us all back into recession? Just because it looks like Germany and France are coming out of recession doesn't mean everything is going to be rosy for the next 10 years.

yeah of course....

its all hocus pocus stuff from these financial wizards!

the facts are, Fra/Ger are coming out the right side and we are firmly stuck where we are...if they continue to grow the interest rates will rise in accordance with that & thats when we REALLY feel the worst....

it was thought (crystal ball time again) that we had a couple of years grace before Fra/Ger got their act together...looks like our time is up a mere 6-8months since that prediction...

expect rate increases in the new year at the latest id say...

 

[Chris]

Now that Germany and France have 'officially' come out of recession will we see the European Central Bank raising interest rates in the not too distant future?

This is complete exageration by the media/politicians. Germany has had one quater of positive GDP change since the start of the recession.

The reason GDP has grown is:
1) decrease in imports (not a sign of economic growth)
2) government stimulus (also not a sign of economic recovery)

Look out for:
1) Increase in industrial production
2) Reduction in unemployment
3) Increase in tax revenue

Until these happen, noone will be able to say the recession is over.


As for BoI predicting double digit growth: Completely gnore what they say/believe. Their (and other banks for that matter) incompetence at making even remotely accurate predictions has been proven beyond any shadow of a doubt.

 

[DublinMo]

This is complete exageration by the media/politicians. Germany has had one quater of positive GDP change since the start of the recession.

The reason GDP has grown is:
1) decrease in imports (not a sign of economic growth)
2) government stimulus (also not a sign of economic recovery)

Look out for:
1) Increase in industrial production
2) Reduction in unemployment
3) Increase in tax revenue

Until these happen, noone will be able to say the recession is over.


As for BoI predicting double digit growth: Completely gnore what they say/believe. Their (and other banks for that matter) incompetence at making even remotely accurate predictions has been proven beyond any shadow of a doubt.

soooo true it hurts...just posted what they tried to feed me...

whats your thoughts on interest rate increases?

 

[z109]

Also be wary about a couple of things:
A decline in imports is positive for GDP. Imports in France and Germany fell.
For countries with domestic car industries, cash for clunkers boosts GDP. Germany and France both have such programs.
Government spending is positive for GDP.
The cure for declines in GDP is declines in GDP...

 

[dockingtrade]

Cheap money was one of the major causes of this disaster. Rates will go up as fast as they went down. What we need also is the UK to come out of recession and raise their rates as the euro will lonly strenghten futher against sterling.

 

[DublinMo]

Cheap money was one of the major causes of this disaster. Rates will go up as fast as they went down. What we need also is the UK to come out of recession and raise their rates as the euro will lonly strenghten futher against sterling.

if that happens..ie rates shoot up, and we're left behind i really fear for the people of this backward kip...

 

[Chris]

soooo true it hurts...just posted what they tried to feed me...

whats your thoughts on interest rate increases?

I believe interest rates will rise as soon as Euro-Zone inflation reaches 2.1%. 2% is the aim for the ECB, nothing else, and the ECB has always been vocal on this. The big question is not whether this will happen, but when. Nobody can answer that, because nobody has ever experienced simulus packages like this before, expecially not on a global scale.

Ultimately the monetary inflation of the past 12 months will lead to price inflation, and that will cause interest rates to go up. I don't believe that we will see Weimar Republic or Zimbabwe style hyper inflation, but low double digit inflation would not surprise me.

In the long run the stimulus packages will make things worse. It was excessive spending on credit and over-leveraged business models that caused this mess. Having governments borrow more to spend more (i.e. spend our way out of the recession) is purely repeating the inital cause of the problem. How can that possibly be the solution?!?!?

 

[DublinMo]

cheers Chris...

least know posters will have half a clue what to look at every month...ie Euro-Zone inflation %

 

[z109]

Yeah, but the ECB are not going to wait until inflation hits their target before raising interest rates. They will be looking ahead at least nine months to see what is coming. The effect of both falling and rising interest rates is delayed, so they will start raising rates when they think we are close to expansion.

One of the methods the ECB claim to use is to look at M3 - broad money figures for the euro. This gives a measure of the expansion of money and credit in the eurozone. The ECB publish M3 in their monthly bulletin. You can find it here:
[broken link removed]

The latest bulletin:
http://www.ecb.int/pub/pdf/mobu/mb200908en.pdf
has the M3 chart and discussion on P15 (adobe):

Monetary growth continued to decelerate
in June, with the annual growth rate of M3
standing at 3.5%, down from 3.7% in May
(see Chart 5). The month-on-month growth
rate was 0.2% in June (having stood at -0.5%
in May and 0.8% in April), thereby continuing
the pattern of alternating negative and positive
rates observed since the end of 2008. Looking
beyond this volatility in short-term growth
rates confi rms that the pace of monetary
expansion is markedly slower than it was prior
to the intensifi cation of the fi nancial turmoil in
September 2008.

My guess is that a sustained turn in the rate of change of M3 will be enough for the ECB to raise interest rates. So, three months of expansion MoM.