Frankfurt Is the European Central Bank (ECB) wrong again with the forecasts it made in mid-June? Like the US Federal Reserve (Fed), it initially assessed inflation as “temporary” and only reacted to it with a delay of a few months. Now, believes Bantleon chief economist Daniel Hartmann, she overestimates the economy and thus also overestimates future inflation.
“In our estimation, inflation could fall below the two percent inflation target as early as 2024,” he says. Most recently, inflation was 6.1 percent. Hartmann suspects: “The ECB definitely does not want to take the risk of excessive inflation. The forecasts therefore also have a political component.”
The asset manager Bantleon from Hanover, which works primarily for institutional investors, describes itself as a specialist in “cyclical asset management” and is proud that its own economists have received multiple awards from the Bloomberg news agency for the accuracy of their forecasts. He manages around five billion euros, but has increased to around 23 billion as a result of the takeover of the former NordLB Asset Management AG.
Hartmann does not shy away from criticizing the central bank: “The ECB’s forecasting quality is not exactly a figurehead,” he says. Because, in his opinion, it sets growth and inflation far too high for the years to come, he concludes: “The ECB does not believe in its own monetary policy.”
Because if she were convinced, according to Hartmann, she would have to assume that the rapid increase in interest rates from zero to four percent within less than a year would significantly dampen demand and thus inflation – which usually only had a full impact months later . With regard to the ECB’s tightening of monetary policy, the economist speaks of the “biggest interest rate shock of the post-war period”.
Hartmann considers inflation forecasts to be wrong
From a purely technical point of view, he accuses the central bank of not taking into account a revision of growth in the first quarter from plus 0.1 percent to minus 0.1 percent in its most recent forecasts. The ECB itself pointed out in a footnote that the change only became known after its calculation had been completed.
Hartmann also says: “The ECB underestimates the downward price trend for food and energy.” According to the latest data, for example, it can be seen that the prices for milk and meat in dairies and slaughterhouses “are already falling significantly”.
The economist does not skimp on criticism of the central bank
(Photo: ZVG)
While the ECB forecasts a 0.3 percent increase in gross domestic product in the euro zone for the second quarter of 2023, Hartmann believes that it will continue to shrink over this period. He also considers the central bank’s forecasts of a total increase of 0.9 percent for 2023 and 1.5 percent for 2024 to be far too high. He also considers the ECB’s inflation forecasts of 3.0 percent for 2024 and still 2.3 percent for 2025 to be correspondingly missed.
He is also critical of the justification given by the ECB for the weak growth it expects in the coming year. Among other things, ECB boss Christine Lagarde named falling inflation as a factor that protects the purchasing power of consumers and thus enables more spending again.
Companies have used inflation to expand margins
Hartmann, on the other hand, counters: “It is not convincing to rely on a recovery in consumption, because that is a lagging indicator.” As a rule, an upswing begins with investments, and there is no sign of that. On the contrary, when inflation falls, corporate profit margins come under pressure, which neither helps investment nor the economy.
Lagarde himself had pointed out that many companies had also used inflation to expand their margins. Hartmann expects that the ECB will have to revise its forecasts significantly downwards again in September.
Compared to other comments, his criticism is unusually pointed. But the economist is not alone in his approach. As in the USA, there has been a discussion for some time as to whether the central bank tightened monetary policy too slowly at first and is now sticking to it for too long.
Erik Nielsen, chief adviser to the Italian bank Unicredit, recently called the ECB’s forecasts “unconvincing”; He also stated that the ECB’s communications were entering “a new phase of greater confusion”. Nielsen has often commented that he increasingly believes the ECB’s monetary policy is too tight.
Vítor Constâncio, the former Vice President of the ECB, had described the latest forecasts as “optimistic” and added on Twitter: “They ignore the future recession, which will help to dampen inflation.” ECB Director Isabel Schnabel, on the other hand, recently confirmed once again that the risks of inflation should not be underestimated.
More: These are the key takeaways from the latest ECB meeting