Macro insights

Three years on: a look at the impact of Quantitative Easing in Europe

Please see glossary for terms highlighted in bold

Three years on since the European Central Bank (ECB) unleashed its massive quantitative easing (QE) programme and Europe appears to be in rude health.

The plan arrived two years after ECB President Mario Draghi declared to markets that he and the Bank were ready to do “whatever it takes” to save the beleaguered region. 

Unveiled at the end of January 2015, the programme began in earnest on 9 March 2015. Its aim was to shore-up the still fragile Eurozone economy by pumping €1.1tn into the financial system at a rate of €60bn every month and using that new money to buy government bonds.

The programme was far larger than markets had expected it to be and it was widely welcomed, and the region has since appeared to have pulled itself out of the economic doldrums.

The recent and upbeat data emerging from Europe has proved that those initial market reactions were on the money.

On the downside, however, the cost of the QE medicine has been a significant expansion of the ECB’s balance sheet. However the Bank has now moved into tapering mode.

Our current expectation is for GDP growth in the region to increase to 2.7% in 2018, up from 2.3% in 2017, which would be the fastest pace of expansion since 2007. While this is somewhat higher than consensus, most commentators are currently positive on the region - as are both consumers and corporates, with purchasing managers’ indices currently at 10-year highs.

The inflation outlook has also improved marginally, and we maintain our forecast for 1.5% in 2018 (in line with consensus) with a gradual pick-up in core inflation to 1.2% in 2018.

Nevertheless, buoyant growth across member states should reinforce the ECB’s confidence that inflation will rise over the medium term and has heightened our expectations that it will lean towards a quick tapering of QE and an accelerated tightening of monetary policy.


Expansion:  To help facilitate economic growth by buying bonds

Tapering:  The gradual winding down of central bank activities.

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