Is the ECB past the peak or just on pause? And: #IWD2022: Break the Gender Pay Gap; Our Podcast on the economic implications of Ukraine's invasion
Ludovic Subran
Group Chief Investment Officer at Allianz, Senior Fellow at Harvard University
A sad aspect of life these days is too many ‘walls’ are being built and not enough ‘bridges’; if the earth was an apartment, we certainly wouldn‘t be getting our security deposit back. Governments around the world have imposed further targeted financial and economic sanctions on the Russian economy and individuals, including export embargoes, sanctions against additional banks, and travel restrictions. In times of sanctions and countersanctions being imposed following the invasion of Ukraine, fiscal and monetary decisions are pivotal. We analyze the ECB’s latest monetary stance (its Governing Council met on March 10 to decide on when to start tapering its quantitative easing). We also have a new episode of our Tomorrow podcast for you focusing on the economic implications of the invasion of Ukraine. Moreover, the beginning of the week was marked by equal pay day, and the fact that this date has only marginally moved up in recent years illustrates how much more needs to be done, i.e. by policymakers equipping women with suitable initiatives.
Not so hawkish after all: is the ECB past the peak or just on pause?
The invasion of Ukraine has created a significant negative supply-side shock to the Eurozone. Inflation continues to rise while financial sanctions have effectively shut down non-energy trade with Russia. Consumer confidence has already deteriorated and suggests slowing growth during the latter part of the year.
Given the uncertain outlook, we believe that the ECB will remain in a wait-and-see mode at the March meeting as concerns about slowing growth and tighter financial conditions will outweigh inflation fears. Under current conditions, maintaining as much policy flexibility and optionality as possible will remain essential. The ECB should not pre-commit to either a notably lower pace of asset purchases in Q2 or ending asset purchases this year. We expect that QE will continue throughout 2022, which would push back the first rate hike (which prior to Russia’s invasion of Ukraine we expected for December) into Q1 2023.
If the baseline conditions no longer apply, the ECB would need to re-assess its monetary stance at the next policy meeting. We could see a more dovish shift if a shut-off of Russian oil and gas triggers a significant deterioration of the growth outlook and requires further monetary easing. Counter-cyclical fiscal policy would ideally complement aggregate demand support from the ECB and help bring forward expectations of normalization during the recovery.
At the Governing Council meeting yesterday, the ECB has indicated that it would scale back asset purchases earlier but generally adopted a wait-and-see mode as concerns about slowing growth and tighter financial conditions will outweigh inflation fears. Under current conditions, maintaining as much policy flexibility and optionality as possible will remain essential. While the ECB will lower its asset purchases in Q2 without committing to further reductions during the second half of the year, we expect that QE will continue throughout 2022; this would push back the first rate hike (which prior to Russia’s invasion of Ukraine we expected for December) into Q1 2023.
You will find our comprehensive analysis here
#IWD2022: Break the Gender Pay Gap!
The so-called equal pay day fell on March 7 this year, it has only advanced marginally in recent years. The unadjusted gender pay gap is a snapshot that shows the average differences in pay between all men and all women in the workforce. It stands at 15% in the EU. Reflecting mostly lower participation rates and shorter working lives, the unadjusted gender pension gap is more than twice as high.
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If the shortfall in women’s income was invested in a 1% annual yielding safe asset over time, we estimate it could generate EUR45,410 on average at retirement age (EUR29,544 in Spain, EUR43,920 in Germany and EUR49,100 in Italy). In France, the sizable divergence in net income by age and gender mean that this sum could be as much as EUR60,714 for women at retirement age. In a context of a 3% annual yielding safe asset, these gender income gaps would amount to EUR71,500 on average in the EU; EUR73,000 in Germany; EUR51,300 in Spain and a hefty EUR94,300 in France, as well as EUR81,300 in Italy.
Against this backdrop, policymakers need to level the playing field and equip women with initiatives such as raising the wage floor; promoting the return of women to the labor market after maternity leave with increased childcare facilities; longer shared parental leave and/or tax incentives and increasing the representation of women in political and economic decision-making positions.
You can read the full report here.
Digital content: A fresh episode of our podcast ‘Tomorrow’:
The invasion of Ukraine has sparked drastic sanctions against Russia. What will this mean for its economy, and for the rest of the world? We find out in this episode with??
Read the full report?