ECB chief sounds dovish ahead of today’s GDP report

There has been much focus on the rhetoric out of the US Fed and European Central Bank (ECB) to reaffirm the underlying monetary divergence theme. At last evening's European Parliament's Economic and Monetary Affairs Committee's hearing, ECB chief Draghi reiterated his dovish stance. He highlighted downside risks from slowing global growth and trade, while inflation dynamics remain weak. 

Press reports had suggested earlier this week that the ECB might add municipal and regional debt into the QE purchases later this year. These remarks keep the door open for further monetary easing in Dec, but this is far from certain given cautious voices in the policy circles. ECB's executive board member Coeure said the debate on further action was still open, while the bank waits for Dec's economic projections. Estonia's central bank head does not see the need to lower rates. Separately, the German council of economic advisers called for QE purchases to be withdrawn or ceased to ensure financial stability. 

In this regard, today's advance estimate of 3Q GDP numbers will be of interest. Growth likely held steady at 1.6% YoY in the third quarter (0.4% QoQ, sa), up modestly from 2Q's 1.5%. At the economy level, trends are likely to be varied. While Spain is likely to maintain circa 3% pace in second half of the year, France is expected to climb out of stagnation. German output however might ease, given the moderation in confidence indices and soft production numbers. 

Overall, growth is expected to improve at a gradual pace, with the full-year estimate at 1.4% (vs 1.1% earlier), helped by favourable domestics by way of low inflation, improving financial conditions, accommodative policy stance and moderation in fiscal consolidation efforts. Downside surprises on growth and inflation will increase the odds of further monetary easing when the European Central Bank (ECB) meets in earlyDecember.