Economic Bulletin

By November 8, 2019 11:04

Economic Bulletin

Update on economic and monetary developments

The risks surrounding the euro area growth outlook remain on the downside. In particular, these risks pertain to the prolonged presence of uncertainties, related to geopolitical factors, rising protectionism and vulnerabilities in emerging markets. At the same time, ongoing employment growth and increasing wages continue to underpin the resilience of the euro area economy. Against this overall background, the Governing Council at its October meeting kept its monetary policy stance unchanged, confirming the decisions taken at the previous meeting in September. The comprehensive package of policy measures that was decided at the September meeting provides substantial monetary stimulus, and thus will contribute to a further easing in borrowing conditions for firms and households. This will support the euro area expansion, the ongoing build-up of domestic price pressures and, thus, the sustained convergence of inflation to the Governing Council’s medium-term inflation aim. Survey indicators suggest subdued, but stabilising, global economic activity in the third quarter of 2019. Following a protracted period of weakness, the global manufacturing Purchasing Managers’ Index (PMI) has improved over recent months and returned to expansionary territory. The global services PMI remained expansionary in the third quarter. Global trade (excluding the euro area) contracted in the first half of 2019 owing to weak intra-Asian trade, but short-term indicators of global trade signal low, but positive, growth in the third quarter. Global inflation declined to below 2% in August, driven in part by lower energy price inflation, while inflation excluding food and energy remained stable at 2.3%. Since the Governing Council meeting in September 2019, euro area long-term risk-free rates have increased and the EONIA forward curve has shifted upwards, largely reflecting lower market expectations of another cut in the deposit facility rate before the end of the year. Sovereign spreads have remained broadly stable, with some countries seeing a slight increase during the review period. Equity prices have increased, despite higher discount rates, owing to a falling equity risk premium. In foreign exchange markets, the euro has broadly strengthened in trade-weighted terms. Euro area real GDP growth was confirmed at 0.2%, quarter on quarter, in the second quarter of 2019, following a rise of 0.4% in the previous quarter. Incoming economic data and survey information continue to point to moderate but positive growth in the euro area in the second half of this year. This slowdown in growth mainly reflects the Economic Bulletin, Issue 7 / 2019 – Update on economic and monetary developments Summary 3 ongoing weakness of international trade in an environment of persistent global uncertainties, which continue to weigh on the euro area manufacturing sector and are dampening investment growth. At the same time, the services and construction sectors remain resilient, despite some moderation. The euro area expansion is supported by favourable financing conditions, further employment gains in conjunction with rising wages, the mildly expansionary euro area fiscal stance and the ongoing – albeit somewhat slower – growth in global activity. Euro area annual HICP inflation decreased from 1.0% in August 2019 to 0.8% in September, reflecting lower food and energy price inflation. On the basis of current futures prices for oil, headline inflation is likely to decline slightly further before rising again at the end of the year. Measures of underlying inflation remained generally muted and indicators of inflation expectations stand at low levels. While labour cost pressures have strengthened amid tighter labour markets, the weaker growth momentum is delaying their pass-through to inflation. Over the medium term inflation is expec…
By November 8, 2019 11:04



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November 2019