In Depth

ECB Monetary Policy Confronts Aging Demographics and Elusive Inflation

As the European Central Bank (ECB) embarks upon normalising its unconventional monetary policy, it is pertinent to consider whether Europe risks sliding into a liquidity trap.

  • As the European Central Bank (ECB) embarks upon normalising its unconventional monetary policy, it is pertinent to consider whether Europe risks sliding into a liquidity trap.
  • To assess this risk and its implications, we examine the evolution of inflation expectations in the eurozone and the linkages between demography and inflation. We review the policy instruments the ECB has at its disposal, whether they are likely to be effective in boosting inflation toward the ECB’s target of “below, but close to, 2%,” and what the investment implications are.
  • Our tentative conclusion is that demographic trends will continue to exert secular, downward pressure on eurozone inflation. We see a non-trivial risk inflation expectations gradually dislodge to levels below 2% over the coming decade and that the ECB enters the next recession without ever having normalised its policy stance.

Download PDF

The Author

Andrew Bosomworth

Head of Portfolio Management, Germany

Konstantin Veit

Portfolio Manager, European Rates



PIMCO Canada Corp.
199 Bay Street, Suite 2050
Commerce Court Station
P.O. Box 363
Toronto, ON, M5L 1G2

The products and services provided by PIMCO Canada Corp. may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose.

All investments contain risk and may lose value. Bond investments are subject to credit, interest rate and other risks. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Alternative investment strategies may be leveraged and may engage in speculative investment practices that increase the risk of investment loss. Derivatives involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in foreign denominatedand/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Forecasts and estimates have certain inherent limitations, and unlike an actual performance record, do not reflect actual trading, liquidity constraints, fees, and/or other costs. In addition, references to future results should not be construed as an estimate or promise of results that a client portfolio may achieve.

PIMCO provides services only to qualified institutions and investors. This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2019, PIMCO.

Fed Policy Amid Elevated Inflation Concerns
XDismiss Next Article