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May 23, 2018

The risks to the Eurozone growth prospects are broadly balanced


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ECBThe risks to the Eurozone growth prospects are broadly balanced. This is clear from the latest economic newsletter of the European Central Bank (ECB). The prevailing strong cyclical momentum could lead to further growth in the near future, but the risks are mostly related to global markets, including currency markets. There is a strong and broad-based growth rate at the beginning of the year. The individual consumption is supported by rising employment, which benefits from labor market reforms and rising household wealth.

The business investment continues to grow under favorable financing conditions and stable demand. Investments in housing also recorded growth in the last quarter of 2017. In addition, the global economic growth has boosted exports to the Eurozone.

The strong impetus of the economy and the increase in capacity further strengthens the confidence of the Governing Council of the ECB that inflation will move closer to its target of around 2%.

The global economy continues to progress at a solid pace with increasing signs of synchronization. The rising oil prices in the last month have contributed to an increase in global inflation.

On the forex markets, the Euro is appreciating against the US dollar. This exchange rate instability is a source of uncertainty that requires monitoring of its possible impact on the medium-term outlook for price stability.

The annual harmonized consumer price index in the Eurozone was 1.4% in December 2017, compared to 1.5% a month earlier. With continued rising oil prices, the annual global inflation rates are likely to move around current levels in the coming months. However, the core inflation will remain weak. It is also expected to gradually increase in the medium term, supported by the ECB’s monetary policy measures, continued economic expansion and rising wage growth.

The Eurozone investments are expected to remain an important factor in euro area output growth.

The global growth continue to stabilize, and the GDP data show steady growth rates in the last months of last year. The PMI globally rose to 54.4 points in December from 54 points in the previous month. The strong performance in December reflects continued expansion in emerging economies – mostly in China and India.

At its last meeting, the ECB decided to leave interest rates unchanged. The central bank of the Eurozone intends to buy bonds worth 2.5 trillion EUR by September 2018, with monthly purchases amounting to 30 billion EUR. The institution promises to keep interest rates stable until it stops buying assets. The regulator’s target is the inflation to reach a level of just under 2%.


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