ECB Nominee Rehn Says Jury Is Still Out on Extent of Slowdown

The likely next head of Finland’s central bank said “the jury is still out” on whether the euro-area economy will rebound from its recent soft patch, and expressed concern about the medium-term outlook.

Policy makers are looking at data “to confirm if it’s a temporary slowing or something more permanent,” Olli Rehn, a former European Union commissioner for economic and monetary affairs who is currently the Bank of Finland’s deputy governor, said in an interview in Helsinki on Thursday. “In the short term the risks are relatively balanced, but in the medium term they tend toward the downside.”

The European Central Bank’s Governing Council said last month that risks surrounding growth are “broadly balanced,” although it acknowledged global challenges such as the threat of increased protectionism had become more prominent.

Past Peak

Growth rates may be slower through 2019

Source: National statistics institutes, Bloomberg surveys of economists

Note: Data from second quarter 2018 is median economist estimate (all data show percent change from previous quarter)

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Early indications from the second quarter hint at a stabilization of growth after the three months through March were hit by cold weather, strikes, capacity constraints and even a flu outbreak. That still needs to be confirmed in the coming weeks, when key numbers reveal whether businesses and households are coming out of hibernation.

Subject to being appointed by Finnish President Sauli Niinisto, Rehn will succeed Erkki Liikanen on July 12 and automatically become a member of the ECB’s policy-setting panel. The president is likely to make the appointment on Friday.

Asked to identify the risks to expansion, Rehn pointed to an eventual reversal in U.S. fiscal stimulus, political uncertainty in places such as Italy and slow economic reform by governments across Europe.

Rehn, 56, will join the ECB as it considers how soon to end its bond-buying program and then move to raise interest rates.

“Most economists believe that it will take several years to gradually reduce the current effect of conventional and unconventional measures,” he said. “In that sense, the whole field of monetary policy is in a very fascinating and important stage at the moment.”

Shrewd Negotiator

Some highlights of Olli Rehn's career

Source: Bank of Finland, Finnish parliament, Financial Supervisory Authority

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Rehn expressed hope that an Italian government that might formed in a coalition of populist parties wouldn’t derail efforts to repair the country’s banking system.

“There is serious work going on to reduce the number of non-performing loans and it’s important that this positive trend continues,” he said. “Political uncertainty is quite high for the moment and there’s no clarity as to what kind of an impact the expressed spending pledges and tax cuts could have at the end of the day.”

— With assistance by Kati Pohjanpalo