06 February 2020

ECB: Economic Bulletin

Incoming information since the last Governing Council meeting in early December is in line with the Governing Council’s baseline scenario of ongoing, but moderate, growth of the euro area economy. In particular, the weakness in the manufacturing sector remains a drag on euro area growth momentum.

Global economic activity remains moderate, but there are signs of stabilisation. In particular, the global manufacturing sector firmed in the last quarter of 2019, while the services sector remained broadly stable. Global trade remains weak amid signs of stabilisation.

Since the Governing Council meeting in December 2019, movements in euro area financial markets have been limited, with asset prices continuing to be supported by accommodative monetary policy and improved risk sentiment as trade tensions have further receded. Long-term risk-free rates are broadly unchanged and the EONIA forward curve has shifted slightly upwards, continuing to signal market expectations of an unchanged deposit facility rate in the coming months. Sovereign spreads have remained broadly stable over this period. Equity prices have increased amid lower risk premia, and corporate bond spreads have decreased slightly. In foreign exchange markets, the euro has weakened slightly in trade-weighted terms.

Euro area real GDP increased by 0.3%, quarter on quarter, in the third quarter of 2019, following growth of 0.2% in the second quarter. This pattern of moderate growth reflects the ongoing weakness of international trade in an environment of continued global uncertainties, which has particularly affected the euro area manufacturing sector and has also dampened investment growth. Euro area annual HICP inflation increased to 1.3% in December 2019, from 1.0% in November, reflecting mainly higher energy price inflation.

On the basis of this assessment, the Governing Council decided to keep the key ECB interest rates unchanged and expects them to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.

The Governing Council confirmed that it will continue to make net purchases under the ECB’s asset purchase programme (APP) at a monthly pace of €20 billion. It expects them to run for as long as necessary to reinforce the accommodative impact of the ECB policy rates, and to end shortly before the Governing Council starts raising the key ECB interest rates.

The Governing Council also intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

In the light of the continued subdued inflation outlook, the Governing Council reiterated the need for a highly accommodative stance of monetary policy for a prolonged period of time to support underlying inflation pressures and headline inflation developments over the medium term

The Governing Council also decided to launch a review of the ECB’s monetary policy strategy.

Full economic bulletin on ECB

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