ECB to end QE by Dec but should do so sooner-economists

BENGALURU (Reuters) - The European Central Bank will stop printing money by the end of the year, but should do so much sooner, a majority of economists polled by Reuters said, citing a solid and synchronized growth outlook for the currency bloc.

The debate on the central bank ending its quantitative easing (QE) program has now moved to when rather than should.

That is largely driven by robust growth expectations with upgrades for a majority of the euro zone economies in the latest Reuters poll of over 100 economists taken Jan 11-19.

"The ECB should not have run such a big and extended QE program in the first place, but given that they have committed themselves to not halting purchases before September, they should obviously stick to that idea," said Elwin de Groot, head of macro strategy at Rabobank.

Minutes from December's ECB meeting signaled a revisit to its communication stance in "early" 2018 and specifically a pledge to continue its more than 2.5 trillion euro money-printing program.

But a separate Reuters story based on three sources close to the matter last week showed any change to guidance was likely to come later than the Jan. 25 meeting.

About 90 percent of 70 respondents who answered an extra question said the ECB will completely shut its bond buying program by year-end, including 26 economists who said September and four October. The remaining seven economists expect the central bank to end it sometime next year.

But over 60 percent of the poll's participants who answered another question said the ECB should pull the plug on its 30 billion euros worth of monthly asset purchases by the end of September at the latest. That included almost a fifth of the economists who said it should happen well before September.

"There is no need to extend QE beyond September 2018 given that growth will remain clearly above potential for the time being and that there are increasing signs that underlying inflation will trend higher," said Martin Wolburg, senior economist at Generali Investments.

"Prolonging QE in this environment would do more harm than good."

EURO RISING ON SOLID GROWTH, NOT INFLATION

The euro zone economy is forecast to grow on average 2.2 percent this year and 1.8 percent next, compared to 2.1 percent and 1.8 percent, respectively, in the previous poll.

Surging business and consumer confidence and steady job creation have left economists repeatedly raising their estimates for major economies in the region.

The German economy, Europe's largest, is expected to continue its solid upswing, with GDP growth forecast at 2.4 percent for 2018, compared to 1.9 percent in the previous poll.

Economists were increasingly bullish about France's economic outlook forecasting on average 2.0 percent growth this year, up from 1.7 percent in a poll in October.

But the ECB is expected to keep its interest rates on hold this year. The central bank is forecast to have raised its refinancing rate by 25 basis points to 0.25 percent and deposit rates by 40 basis points to zero percent by the end of 2019.

The ECB is expected to take its deposit rates higher for the first time since 2011 in the second quarter of 2019.

Those expectations come on the back of solid growth for the euro zone economy in 2017, during which it surpassed that of the U.S. and Britain.

The strength of the bloc's economy has driven the euro's best run since 2003 last year and a separate Reuters poll showed the single currency was expected to trade slightly higher by end-2018. [EUR/POLL]

Euro strength will be one of the challenges the central bank needs to deal with as a stronger currency tends to dampen inflation by making exports dearer and imports cheaper.

Since the ECB's last meeting, the single currency has gained over 4 percent and policymakers need to evaluate the impact of this rise on prices and the economy.

Indeed, the euro zone economy expanding at its fastest pace in a decade and jobless rate at nine-year lows has not converted into significantly faster price growth.

Inflation is not expected to reach the ECB's target until 2020 at least, with the consensus ranging between 1.3 and 1.6 percent in each quarter through to the middle of next year.

For the full year, inflation is forecast to average 1.5 percent this year and 1.6 percent next.

The risk, though, is skewed more to the upside for inflation as the latest expectations were higher compared to the previous poll and the range of forecasts show pessimism has dissipated.

"In the context of an upwardly revised growth path, 2018 will likely mark the beginning of three key shifts – from negative to positive output gap, from below- to above-average core inflation and from ECB QE to the end of it," noted Daniele Antonucci, ‎senior European economist at Morgan Stanley.

(For other stories from the Reuters global long-term economic outlook polls package see)

(Polling and additional reporting by Indradip Ghosh and Manjul Paul in Bengaluru, Michael Nienaber in Berlin, Leigh Thomas in Paris and Viviana Venturi in Milan; Editing by Toby Chopra)