ECB Watching: ECB February Bulletin - Downbeat tone

Bottom line: Today's ECB February Bulletin does not add so much more to the generally downbeat tone emerging from ECB officials, such as (in our view) Mr Papademos speaking last night in London and Mr Stark speaking yesterday.

In particular, Mr Papademos commented that economic conditions were "deteriorating" that there might be a negative feedback loop in some countries between the financial sector and the real economy, and that financial institutions might continue to tighten credit and to curb new lending. Meanwhile, Mr Stark reportedly observed that a recovery was looking more likely for 2010 than in late-2009.

Today's Bulletin is also of interest as it gives details on the ECB's latest quarterly Survey of Professional Forecasters (SPF) and also presents a new series for bank lending growth to the non-financial private sector, which is adjusted to exclude the impact of securitisations and loan sales.

Predictably enough, the SPF showed a sharp reduction in near-term inflation expectations and a moderate decrease in longer-term expectations (please see chart attached) - we think that there will be further declines given that this kind of consensus tends to have a lag. Meanwhile, the new survey of adjusted loans to the non-financial sector recorded its first ever monthly drop in December - the ECB notes also that the non-financial corporate sector also has been running down its deposit holdings. There are also interesting chapters referring to a very detailed survey of 17k of firms' wage and price setting, and on protectionism.

Julian Callow wrote in a Barclays Capital Research report.