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ECB's Lagarde will echo Draghi's stance, but QE won't help growth, economists say: Reuters poll


By Shrutee Sarkar

BENGALURU (Reuters) - Easy money from the European Central Bank will not revive the euro zone's frail economy, according to a Reuters poll of economists, who said the ECB's new president, Christine Lagarde, would follow policies similar to her predecessor's.

The ECB has resumed bond purchases, buying 20 billion euros worth of bonds a month, and in September it lowered its deposit rate deeper into negative territory while keeping the door open to future reductions.

Forward-looking indicators suggest a slowdown in the euro zone, but the chances of a recession over the coming year fell to 25% from 30% in the last poll. For the coming two years, it was down to 30% from 35%.

While many major central banks, including the U.S. Federal Reserve, are easing policy, there are risks from a U.S.-China trade war and from Brexit.

"We think that ultimately if growth continues to disappoint and especially inflation continues to disappoint, there will be more pressure on the ECB to do at least something again," said Elwin de Groot, head of macro strategy at Rabobank.

"And then rate cuts are probably the path of least resistance, because it's also clear that wrapping up quantitative easing again, that's become tougher."

Despite monetary stimulus, euro zone inflation languishes at less than half the ECB's target of just below 2%. The Nov. 11-14 poll suggested it would not be anywhere near that until at least July 2021.

Inflation was predicted to average 1.2% next year, unchanged from October's survey. The median forecast for 2021 was 1.4%, the lowest since polling started for this period in January.

Quarterly inflation forecasts were downgraded or kept the same from last month's poll for every quarter from now through the end of 2020.

The euro zone economy expanded 0.2% last quarter and the regular poll of over 80 economists predicted GDP growth would average 0.2% to 0.3% per quarter from now to mid-2021, largely unchanged from the last poll.

Over 90% of economists who answered an additional question said Lagarde, who took over as ECB president this month, will follow former President Mario Draghi's dovish policy stance.

Lagarde and Governing Council members met on Wednesday after public opposition from some policymakers over the stimulus raised doubts among market players about the likelihood of more easing.

When asked if Lagarde would be successful in helping facilitate a "synchronized fiscal response" to the slowdown over the coming year, 60% of 43 economists said no.

"Lagarde will definitely try. But experience has shown that it is too much to coordinate 19 countries," said Jens Oliver Niklasch, senior economist at LBBW.

"Admittedly, it might be a question of perspective. Many politicians will proclaim progress ... and we might see some sort of a small-dimensioned fiscal capacity for the euro area."

Despite expectations for lacklustre growth over coming quarters, the timing of the ECB's next deposit rate cut, to -0.6% from -0.5%, was moved to the second quarter of next year from the first quarter predicted a month ago.

The refinancing rate was seen unchanged at 0.0% through to the end of 2021 at least.

(Polling by Sujith Pai and Tushar Goenka, editing by Larry King)

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