Societe Generale economists anticipate that the European Central Bank (ECB) will keep its policy unchanged during the upcoming meeting, while maintaining a hawkish tone as it assesses the recent surge in oil prices [1]. The economists note that the current oil shock is modest compared to previous episodes, with oil prices well below historical highs, especially when adjusted for inflation [1]. European economies have reduced their oil consumption significantly since the 1990s, now at a third of previous levels, which helps mitigate the impact of rising prices [1].
According to Societe Generale, oil prices would need to double before reaching the magnitude of past shocks, suggesting that the current economic impact remains contained [1]. However, they caution that if Iran restricts flows through the Hormuz Strait, the oil shock could persist, prompting the ECB to remain vigilant regarding growth and inflation risks [1]. The declining share of fossil fuels in electricity generation provides an additional cushion against energy price volatility [1].
The ECB meeting scheduled for Thursday is expected to be a focal point, with the central bank closely monitoring geopolitical developments to determine whether the increase in energy prices is temporary or permanent, and how it might affect the broader economy [1]. Societe Generale believes it is too early for the ECB to draw firm conclusions about the negative growth impact or whether it could limit second-round effects on inflation, which might necessitate a tighter policy stance [1]. If the economy demonstrates resilience, the ECB's recent strategy review, which emphasizes attentiveness to supply shocks, will be particularly relevant [1].
CONCLUSION
Societe Generale expects the ECB to maintain its current policy while adopting a cautious, hawkish tone in response to the recent oil price surge. The modest nature of the oil shock and reduced European oil consumption help limit immediate economic risks, but ongoing geopolitical uncertainties could influence future ECB decisions. The market is likely to remain attentive to the ECB's assessment of energy price developments and their potential impact on growth and inflation.