ECB’s €1.1tr QE programme could cut paper costs for UK printers
Friday, January 23, 2015
A €1.1tr (£834bn) asset purchase scheme announced by European Central Bank (ECB) president Mario Draghi this morning could cut the cost of key imports such as paper and ink for UK printers.
The asset purchase scheme follows similar Quantitative Easing (QE) programmes in the US and UK and is intended to increase inflation to around 2% and stave off the risk of deflation (as happened last year when prices in the Eurozone fell by 0.2% in the year to December).
Nicholas Mockett, head of packaging M&A at Moorgate Capital, said: “The problem with deflation is that falling prices encourage people to postpone expenditure, both consumption and capex; why would you buy today what you can buy cheaper later? So deflation can cause an economy to go ex-growth.”
The announcement has sparked a drop in the value of the euro and in Eurozone government bond yields, as well as a sharp rise in Eurozone stock markets as investors plumped their money into equities.
Mockett cited a number of reasons for the latter, including the fact that Eurozone companies’ non-euro earnings would now be worth more when remitted to Europe, while corporate interest rates were likely to fall due to the increased supply of money, resulting in better profits.
“What this means for the UK print industries is that as the euro weakens against sterling you should expect lower costs of imports such as paper and ink,” said Mockett. “However, if you are exporting to the Eurozone your prices will be less competitive than local suppliers and therefore you may lose sales. Similarly more European suppliers may be able to service the UK market.
“If the QE doesn’t work and recession or deflation persist, companies may cut expenditure which could include printed products (advertising). Meanwhile, if capacity exists for previous levels of demand, or forecasts for demand, this will weaken the negotiating position of suppliers.”
Mockett added that the market expectation was that the ECB QE programme would work (following growth in the US and UK – both of which carried out extensive QE). “This would mean a more buoyant economy in Europe, a major trading partner for UK PLC,” he said.