We see worrying similarities with Japan, says Robertson about ECB

Stewart Robertson, senior economist at Aviva Investors sees worrying similarities between today’s ECB policy and that of Japan 20 years ago.

Draghi has acknowledged the alarmingly weak recent CPI inflation numbers across the eurozone, but actually seems fairly relaxed – complacent in our view – about them. He clearly articulated the view that he does not believe there is a big Euro Area-wide deflation risk, even with these numbers. He says that we will see a “protracted period” of low inflation but that inflation expectations remain “well-anchored at rates that are consistent with the aim of price stability defined as CPI inflation close to but below 2%”.

We are more concerned and see worrying similarities with the situation in Japan 20 years ago, when the extended deflationary period began from which it is only now emerging. In our view there is a very real risk of deflationary forces taking root in many countries within the eurozone and indeed the area overall. If weakness persists, as we believe, then the ECB will come under pressure to do even more in the future. We hope that they do, including some of the bolder, unconventional monetary policy measures (QE) that have been employed elsewhere.

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